Audit of the receivership process / Office of the State Auditor.

Abstract

Controls used by the Texas Department of Insurance's Liquidation Oversight division over the liquidation of insurance companies were generally weak during fiscal year 1993. Weak controls, coupled with a few instances of high costs, such as excessive special deputy receiver fees, indicate a risk that overall liquidation costs are too high. Controlling and keeping costs low is important because taxpayers pay a substantial part of liquidation costs. Every dollar saved by making the liquidation of insurance companies more efficient is one less dollar paid by taxpayers. The cost to taxpayers is measured, in part, by assessments on the insurance industry. During calendar year 1993, these assessments totaled $126 million. State tax laws allow insurance companies to deduct their assessments dollar for dollar against insurance taxes, generally over ten years. As a result, taxpayers are ultimately paying for this portion of the cost to liquidate estates. Assessments are made when assets of estates are insufficient to pay covered claims. In addition to the impact on taxpayers, controls over the liquidation process are important because significant amounts of money are involved. The Department, through its Liquidation Oversight division, was responsible for monitoring more than $126 million in cash disbursements paid in fiscal year 1993 to policyholders and as costs to liquidate insolvent companies. This involved oversight responsibilities over 31 special deputy receivers and 102 estates. Special deputy receivers and their subcontractors were paid an estimated $14.3 million to administer and liquidate estates during fiscal year 1993. An estimated $375 million in estate assets and $821 million in unpaid claims remain as of August 31, 1993. Our audit concluded that Liquidation Oversight should make improvements to contain costs and strengthen oversight of the liquidation process.