Bubble pudding

An excellent piece of investigative business reporting in this past Sunday’s Times from Mary Williams Walsh, concerning the creative accounting that many insurance companies have happened upon: “captive reinsurance” is a fancy name for hiding liabilities on a subsidiary’s balance sheet.

She uses the case of Accordia Life and Annuity, which allocated insurance liabilities to six subsidiary companies, capitalizing the subs with egregious mutual exchanges of IOUs. It’s not for nothing that one of the subs is named Tapioca View.

But the paradox of the story is that the state of Iowa (where Accordia is incorporated), which has the express goal of making Des Moines an insurance center, is also a leader in requiring transparency, thereby making it possible for journalists to expose the shaky dealings.

…before you blame Iowa for playing fast and loose with the legacy of [19th-century reformer] Elizur Wright, remember: Most states now allow captive reinsurance. So do the traditional offshore insurance havens like Bermuda. And most keep it secret. But Iowa has decided to stick its neck out and let people look at the deals, knowing full well that they might not like what they see.