Billions in Lehman Claims Could Bury an Elusive Insurer

CNBC ^ | 7/31/09

[FromLori]

Next to a Chinese restaurant in Burlington, Vt., lurks a quiet guardian of Wall Street — an obscure insurance company that is supposed to protect big-money investors in the event of a catastrophic failure of a major brokerage firm.

A failure, for instance, like the one that brought down Lehman Brothers nearly 11 months ago. Now, after years in the shadows, the insurer, the Customer Asset Protection Company, could finally be put to the test, and questions are starting to swirl.

The worry is that the company, which has never paid out a claim, might be unable to cope with the Lehman bankruptcy.

If it were overwhelmed by claims, the banks and brokerage companies that own Capco, as it is known, could end up owing billions of dollars.

Capco representatives dismiss such concerns, but state insurance regulators are keeping an eye on the company. Officials at the New York State Insurance Department are concerned about the company’s ability to withstand the Lehman bankruptcy, the largest in history.

By some industry estimates reviewed by the insurance department, Capco could face nearly $11 billion in claims but has only about $150 million with which to meet them. The state is examining whether the company sold policies without the means to cover them, according to a person with direct knowledge of the inquiry who had signed confidentiality agreements.

[ridesthemiles]

I think all the major insurance copmpanies are shaky.

Who is paying their house insurance with all the foreclosures??

[Jim from C-Town]

Most home owner policies are purchased by the consumer, but paid by an escrow company. The cost of the taxes and Insurance is prefigured into the monthly payment. The Escrow payment is generally made on an annual or Semiannual basis. In the event that a person stops paying his mortgage the bank in most instances puts insurance on the home and adds the cost to the mortgage. If the insurance company is not paid the insurance lapses and the Insurance Co. has no liability.

The Insurance Industry is state regulated product in most respects. This is going to be a sticking point for Obama Care. Many of the states may opt out their citizens from the program setting off a turf war and many law suits over Federalism.

If nothing else, I think we may soon be living in interesting times.