IOWA CITY, Iowa (AP) — For cash-strapped life insurance companies, the deal sounds almost too good to be true: A state law allows them to create complex financial instruments to transfer liabilities to new subsidiaries, wiping huge obligations off their balance sheets.
So-called “shadow insurance” agreements have exploded over the last decade. But a growing number of critics, including economists and consumer advocates, say the practice threatens the solvency of insurers and puts policyholders and taxpayers at risk.
These opaque instruments are emerging in places like Cedar Rapids, Iowa, at the headquarters of TransAmerica Life, a subsidiary of the Netherlands-based Aegon NV.
Joseph M. Belth is a professor emeritus of insurance at Indiana University. He calls the practice “a shell game” and has asked Iowa to release more documents related to companies that use it.
