Stung by sweeping criticism against her office, the Massachusetts Commissioner of Insurance, Linda Ruthardt, has issued a strongly worded response to a report from the House Post Audit & Oversight Bureau (HPA&O) of the state Legislature ( The Royal Gazette , November 24).

Labelling the report "adversarial'', the Commissioner denied its claim that her Division of Insurance (DOI) review, and subsequent approval, related to EMLICO's (Electric Mutual Liability Insurance Co.) move to Bermuda was "inappropriately and imprudently conducted.'' She insisted that no Massachusetts policyholder has been financially harmed and the DOI had "aggressively investigated and redressed any harm to the regulatory process resulting from the actions of EMLICO and its affiliates.'' Ms Ruthardt argued, in a wide-ranging and detailed reply to the report, that her office is consistently among the most aggressive insurance regulators, supervising one of the largest domestic insurer populations.

She said this was borne out by accreditation with the National Association of Insurance Commissioners since 1993.

She submitted US policy holders benefited from her review of the proposed reorganisation that moved EMLICO's good business into affiliate, Electric Insurance Co. (EIC) and shipped EMLICO to Bermuda, where it declared insolvency.

Also a General Electric Co. (GE) insurer, EIC is a personal lines insurer with some 80,000 auto and homeowners policy holders.

Ms Ruthardt argued, "If EMLICO had failed while it reinsured 100 percent of EIC's insurance risk, then EIC would also have failed. Guaranty Funds throughout the US would have been triggered and hundreds of millions of dollars of EIC-related obligations would have been imposed on insurance consumers, not to mention the possible losses and disruption caused to EIC's own policyholders.

"Clearly, the division's approval of this modification of the EMLICO-EIC reinsurance programme, an aspect of the 1995 reorganisation, was in the best interest of policy holders and all insurance consumers.'' She added that at the time, EMLICO had about 350 non-GE policyholders, who were advantaged by EIC's assumption of their policies as part of the reorganisation.

Her view was that US guaranty funds were spared billions of dollars of costs and consumers were spared higher premiums by the DOI's obtaining a waiver from GE that they would not make claims against the funds. And that deal, she said, was leveraged by the reorganisation application.

She denied the HPA&O bureau's allegations: That the DOI did not properly examine EMLICO's financial statements; that the examination was accelerated then abruptly terminated; that a communication failure led to an uninformed regulatory decision.

The examination of EMLICO was to NAIC standard, she said, and the HPA&O bureau has confused the facts provided to them about the examination.

She reminded the bureau that decisions made by insurance commissioners are to give priority to policyholders and insurance consumer interests. Reinsurers do not fall into that category, and therefore have no right to notice of applications to the DOI, even though the DOI actually published such a notice, in a standard way by gazetting it in a newspaper.

Ms Ruthardt said, "Possible failure to provide the division with vital financial information in 1995 caused me in 1996 to aggressively investigate the facts and ultimately obtain EMLICO's and GE's support for a US liquidation proceeding in Massachusetts which repatriates important issues for determination here.

"If EMLICO's management knew the company to be insolvent in 1995 and did not disclose that fact to me, as required by law, then my approval was obtained by fraud or misrepresentation.

"This is a serious allegation which, if proven to be the case, constitutes a public harm to the regulatory process -- even though under these unique facts, policyholders and insurance consumers did not suffer economic harm.'' She said she has fully cooperated with the US Attorney in his investigation of that matter and the proposed settlement does not prevent further investigation by law enforcement officials.

COURTS CTS