Keeping Insurers Solvent

November 23, 1990

There's at least one positive offshoot from the troubles experienced by local banks and insurance companies: It is focusing attention on the short arm of insurance regulation in Maryland.

The Governor's Commission on Insurance, mindful of the savings and loan debacle of the not-too-distant past and the mounting problems of banks and insurers, has proposed a raft of recommendations that would raise required reserves and broaden the reach of state regulators over insurance companies.

These changes are long overdue. Maryland's insurance capital and reserve requirements rank an embarrassing 49th in the nation. They have not been updated since 1964. What is surprising, given the laxity of existing guidelines, is that there have been only two insolvencies in 20 years.

Maryland ought to take a tougher stance in regulating its bustling domestic insurers. Like their counterparts in the thrift and banking industries, insurers rode the tide of high interest rates in the early '80s, socking premium dollars away in high-return, often high-risk investments.

Earlier this year, a House subcommittee in Washington concluded that "if warnings are not heeded, the insurance industry and the nation could face a solvency crisis rivaling the present savings and loan situation."

State legislators need look no further than USF&G Corp. to see the sort of bind confronting some insurers. Hit by a squeeze on profits, USF&G's chairman, Jack Moseley, resigned; the quarterly dividend was slashed, and major layoffs may loom.

Yet opposition to the state commission's recommendations is already building. Del. Casper R. Taylor, D-Allegany, chairman of the House Economic Matters Committee -- which torpedoed a bill to increase capital and surplus requirements last session -- says the committee "didn't see the rush" to ensure adequate reserves. He points out that neither of the two Maryland insurance insolvencies during the last 20 years would have been prevented by such a move.

Mr. Taylor misses the point. The time for legislators to act is before the insurance industry experiences tough times. The commission's recommendations represent a prudent approach to regulating an increasingly troubled industry, one that plays a major role in the state's economy. Have legislators already forgotten the lessons of Maryland's S&L crisis?

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