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Sunday, May 29, 2011

States Loosen Insurance Rules

I cannot believe that the states are encouraging irresponsible behavior by the Insurance Companies (Seeking Business, States Loosen Insurance Rules. New York Times, May 9, 2011: A1, A3).

After the catastrophic collapse of the mortgage and insurance markets of the late 2000's, I would have thought that states would ratchet up the rules rather than loosen them. It is highly risky to allow captive reinsurers to operate with high leverage. Any reverses will ricochet destructively through the economy.

I lived in Maryland when the state chartered Savings and Loan Companies failed and the State reneged on its underlying commitment to insure the deposits. Many ordinary people lost their savings.

The states should ensure that the firms they charter undertake their activities in a prudent and responsible manner.

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