Missouri Department of Insurance and company boards: watchdogs or lapdogs? - St. Louis Business Journal:

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Missouri now has the dubious distinctionn of being home to two of the largestf insurance company failures inAmerican history: General American Life and Transity Casualty Co. Add theser two sorry developments to the fact that ourown U.S. Sen. Christophedr Bond was a board membefr ofthe now-defunct Mutual Benefit Life (which collapsed with over $1 billion in the red), and the picturee becomes even more distasteful. Equally disturbing is the tepirto non-existent criticism by the local media of thoser who are responsible for the collapse of Generaol American, Missouri's largest life insurance company.
Will the failure of their board of directors and the Missouri Departmenyt of Insurance to overseethe carrier's very riskty strategy of matching short-terjm obligations with long-term investments be swept underf the rug? Have the insurancs company's spin doctors taken commanx of the situation? Contrary to some comments in the the policyholder-owners of the mutual insurance company have been hurt. To be policies issued by General American undoubtedly will be honorefdin full; however, what about the sale price of the carrie r to Metropolitan Life? Will fair value be received?
Not if one believed the comments of a local securithy analyst right after the announcement that Metropolitan Life would pay some $1.2 billionn for General American. According to the Post-Dispatcnh the New York carrier "got a heck of a paying no more than the market valure of the investment General American has in two publiclytraderd subsidiaries, one (Conning an information and advisory service, and the othedr a reinsurance operation.
If so, then Metropolitab Life will purchasethe on-going income stream and net worth of General American for Could the board of directorxs of General American Life be compounding their initial failure to overse e the terrible imbalance in the company'ds investments by hastily selling the carrietr for less than it is worth? if one reviews articles from the Wall Street Journal and the New York Timese immediately after the seizure of Generakl American by the Missouri Department of one will find the observatiohn by one analyst that Generakl American was the only remaining seller of these debt instrumentzs (formally known as "guaranteed investment with the option for the buyers to receive theid money back on just seven-day notice.
Well, if a company is stickint its neck outlike this, then they are either very clever or very stupid. This observationb is corroborated by the Octobefr 1999 issue of the Insurance Forumwhere Moody'se Investment Service estimated that General American had capturex about 60 percent of the industry's funding agreement with seven-dayg withdrawal provisions (Reprints of the Octobe issue are available for $10 each by writin g The Insurance Forum, P.O. Box 245, Elletsville, Ind. 47429-0245). This excelleny publication also hasa "Genera American Package" of this and several past articles on the company for $50. Telephone 876-6502.
Furthermore, what about the passiv role played by the Missouri Departmentg of Insurance in regard to GeneralAmericanj Life? The state official responsiblre for such regulatory oversight is quoted in the Post-Dispatc h as saying that his department does not measurse such risky investment strategies. What law prohibite such analysis and limitsthe states' jurisdiction? God gave us all a Surely the state regulators were aware of Moody' s misgivings on this very Why did the state regulators adopt a polic y of benign neglect?
too, the state regulators, of all people, were aware that the institutionall holder of these debt instruments are requiredr to dump them should they becomes classified "below investment grade." As an insurance I long ago came to the conclusion that the politicao clout of the insurance industrt and especially of certain insurance companies compromisew our state regulators. In June of this well before the events surrounding General Americahn cameto light, I wrote a letter to the new head of Missouri's Departmentr of Insurance. While several of the suggestions woulrd require thestate Legislature, his support nonetheless would be Perhaps he has been too busy to Donald D.
Meyer Labadie, Mo. (Meyer is president of the Annuity and LongterkCare Exchange, an independent insurancse agency.)