The Financial Condition and Regulation of Insurance Companies: An Overview

by Richard E. Randall and Richard W. Kopcke
May/June 1992

In October 1990 questions were raised about real estate problems in the life insurance industry after the ninth largest life company sustained a major loss as a consequence of a write-down of real-estate-related assets. The value of insurance company stocks declined as the financial community began to take a hard look at the recent changes that had taken place. During the spring of 1991 the press increasingly focused on the industry, once it became evident that the life subsidiaries of First Executive and First Capital were impaired as a consequence of substantial investments in junk bonds.

In the summer of 1991, the Federal Reserve Bank sponsored a conference to examine the dramatic changes that have transformed the seemingly stable insurance industries into industries that could arouse public anxieties. How pervasive are the weaknesses that have shown up in a few large insurers? Is there a danger that widespread liquidity pressures could develop? What changes should be made in regulation or in arrangements to protect customers of insurance companies? These are some of the primary questions addressed in the conference proceedings.

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