State Knew of Executive Life Woes Years Ago, GAO Says

California regulators delayed taking action at Executive Life Insurance Co. even though they knew years in advance that the huge insurer was insolvent, a congressional agency said.

The U.S. General Accounting Office, which serves as the investigative arm of Congress, found that state regulators also failed to act on advance knowledge of the insolvency of three other large insurers, according to a report submitted Wednesday to Congress.

“It was not until the hemorrhage of policyholder runs” that the state decided to take action, said Richard Fogel, assistant comptroller general in the GAO’s office of general government programs.

“GAO believes that (state) authority must also include requirements compelling regulators to intervene when insurers operate in hazardous conditions characteristic of failure,” the agency’s report said.

The report also focused on First Capital Corp., Fidelity Bankers, and Executive Life of New York, a sister company of Executive Life and a unit of the failed First Executive Corp. These four insurers had a total of about $85 billion in business and more than 900,000 policies when they were taken over by state regulators, the GAO said.

The study could support efforts by Rep. John Dingell (D-Mich.) to create federal oversight of the insurance industry, a task now left to the states.

Dingell, who believes that the lack of uniformity in state insurance codes has confounded regulation of the industry, has proposed legislation that would create a federal insurance solvency committee to oversee insurers.