NY faults 17 life insurers for shifting risks

Courtesy of the Associated Press

ALBANY, N.Y. (AP) — New York financial officials say 17 New York-based life insurers shifted $48 billion of claim risks to affiliates elsewhere with lower reserve and collateral requirements.

The report Wednesday by the Department of Financial Services says so-called "shadow insurance" typically offloads potential claims to a subsidiary, freeing the parent company's own reserves for other uses.

However, the insurers would remain responsible for paying claims if subsidiaries' lesser reserves are used up.

The department investigated practices of 80 New York-based insurers. It declined to name the 17 companies but says it stopped approving similar new arrangements in October 2011.

Superintendent Benjamin Lawsky says the questionable practices "shift risk out of sight" and could ultimately leave policyholders and taxpayers "holding the bag." The report didn't cite any examples where policyholder claims went unpaid.