Nov. 22, 2003 Lt. Gov. Vargrave Richards has expressed his displeasure with the apparent attempt by the Legislature to dip into the territory's Insurance Guaranty Fund to help with its budget shortfall.
Richards, who also acts as Commissioner of Insurance, wrote Senate President David Jones Friday arguing that an intact guaranty fund is essential to attracting new insurance companies. The Legislature has proposed issuing a $30 million letter of credit backed by the fund, which currently holds some $51 million.
The guaranty fund was established several years ago as a hedge against the failure of smaller insurance companies hit with unsustainable claims after any natural disaster or other catastrophe. It is funded by the insurance carriers themselves through a premium tax.
Richards said he feared any compromise of the fund would discourage insurers from doing business in the territory and could lead to homeowners and home buyers having no place to go for coverage.
"We should be alarmed when the territory is unable to sustain a robust insurance industry," Richards wrote. "Not only are insurance consumers affected when insurance is unavailable or unaffordable, but other integral sectors of our fragile island economy are also impacted.
"In the wake of an availability or affordability insurance crisis," Richards said, "banks cannot extend mortgage loans and Realtors cannot sell homes when property insurance is no longer accessible to the average resident. In turn, the ability of residents to build or buy homes is severely impeded; and, without insurance, the financial wherewithal to rebuild storm-damaged homes is not readily available to low- and middle-income homeowners.
"The critical insurance issues facing the territory are inextricably linked to a financially healthy Guaranty Fund," he wrote. "In fact, many of the property/casualty insurers underwriting risks in our islands only do so because the territorys Guaranty Fund is pre-funded. To that end, a Guarantee Fund that is looted can only discourage insurers from doing business locally, aggravate the availability and affordability crisis, and stymie the general economic health of the territory. Obviously, this is a circumstance that we can ill afford."
If the Legislature decides it has no choice but to raid the fund, the Lieutenant Governor said that the following conditions must be applied:
The $30 million appropriation from the Fund must be replaced with a clean, irrevocable and unconditional letter of credit issued in favor of the Commissioner of Insurance, as beneficiary thereof, on behalf of insurance policyholders;
The letter must be issued by a bank licensed by the Banking Board and currently in good standing therewith;
The letter must provide that, in the event of an insurance insolvency that requires payment by the Guaranty Association pursuant to Title 22, Chapter 10, Virgin Islands Code, the Insurance Commissioner shall have the right upon demand to draw down up to $30 million from the issuing bank to cover outstanding claims; and
The instrument must remain in place and be automatically extended until the Guaranty Fund is replenished by future premium-tax payments and restored to its statutorily mandated ceiling of $50 million; provided, further, that 60 days prior to the relevant expiration date of the letter of credit, notice must be provided to the Commissioner of Insurance via Certified Mail.
Richards said he is open to discussion with Jones on the matter.
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