What is the Lowest Company Rating You Will Write For?

[Mark]

Yes, everyone is posting the limits and all that. But how much money do they actually have? That is always the key, are they in any better position to back their promises than the companies?

I dont think they really want you to know, because you would next ask what they are doing with the money that they are holding.

If I were to take a guess and say that 5 cent on ever dollar goes into the fund, that would have to be a lot of money by now.

 

[VolAgent]

I dont think they really want you to know, because you would next ask what they are doing with the money that they are holding.

If I were to take a guess and say that 5 cent on ever dollar goes into the fund, that would have to be a lot of money by now.

I'd say you vastly overestimate the amount of money they receive. Probably more like one hundredth of one cent of every dollar in premium.

 

[Larry Tew]

I don't know the amount either, but in NC there has been an average of 1.3 Gauaranty Association "activations" per year over the past 35 years. Most of these activations never resulted in any money being spent by the GA.

But still, it's good to know the back-up is there.

 

[VolAgent]

I don't know the amount either, but in NC there has been an average of 1.3 Gauaranty Association "activations" per year over the past 35 years. Most of these activations never resulted in any money being spent by the GA.

But still, it's good to know the back-up is there.

Oh, its a good thing, don't get me wrong. Just two points. One, don't get in love with the Guaranty Association. Its pockets are no deeper than the FDICs, if more shallow. If a company ever got into some serious trouble, it would be sorely tested. Every talks about AIG. First, the insurer wasn't in any trouble, it was the parent. Second, the size of the insurer would have swamped any Guaranty Association. They would have had to force a merger or every state's association would have had to step in.

Second, I always find it amusing how banks can plaster over every available surface how they are FDIC insured, but State Guaranty Associations are the dirty little secret of the insurance industry.

 

[Larry Tew]

...Second, I always find it amusing how banks can plaster over every available surface how they are FDIC insured, but State Guaranty Associations are the dirty little secret of the insurance industry.

True story, happened last month. I was doing a casual client review one morning at a McDonalds. No confidentialities, just general stuff. When we were finished, a guy a couple of tables over stopped me and wanted to know a little more about what I do.

After I told him, he told me he was insured by this military fraternal that specialized in retired military and because they were fraternal, they were "approved" by the federal government.

I asked him "Have you ever asked your agent what would happen if this fraternal went out of business?" He said "No, should I?" I said "No, not if that sort of thing isn't important to you." He said "Well, what would happen?" I said...

"Well, SINCE YOU ASKED, let me tell you..."