Regulators: Conseco Insurance Subs Are Solvent

"Everyone is hoping and praying that Conseco will right itself," says Lee Jones, a spokesman for the Texas Department of Insurance.

Regulators emphasize that state insurance laws and regulations build strong walls around the insurance subsidiaries' assets.

The Indiana department hired outside lawyers to study whether Conseco's creditors could get to the subsidiaries' assets if the parent company filed for bankruptcy, Thomas says.

The outside lawyers found no case law on the issue, but they suggested in a privileged memorandum that the creditors would not have access to the insurance subsidiaries' assets, Thomas says.

In Illinois, the insurance department must give approval before an insurance subsidiary can "upstream" any dividends or surplus notes to a parent company, according to Jack Messmore, deputy director of the financial division at the Illinois Department of Insurance.

Regulators can also use risk-based capital requirements to keep insurance subsidiaries from writing new business if a parent company lets insurance subsidiaries' capital fall below the required levels, says John Charlton, a spokesman for the Ohio Department of Insurance.

Similarly, state regulators must give their approval before a parent company can sell its insurance subsidiaries, Jones says.

When Conseco managers spoke to Florida department regulators, they said the parent company had no plans to sell any of the insurance operations or to move books of business, Vecchioli says.

One open question has to do with the role state guaranty funds would play if Conseco's insurance subsidiaries ran into serious problems.

Regulators interviewed were not sure whether the guaranty funds would cover all of Conseco's product lines. The National Organization of Life and Health Insurance Guaranty Associations, Herndon, Va., could not immediately be reached for comment.