Ten years ago regulators got worried that life insurance companies had too little set aside to cover future liabilities that might follow a rush of death claims. So the regulators, in the form of the National Association of Insurance Commissioners, advanced Regulation XXX, which mandated higher reserves.rnReluctant to set aside a lot of cash for these liabilities, insurers parked them in special-purpose subsidiaries, injecting some of their own cash plus a lot from outside investors willing to buy notes issued by the subs. These notes were akin to subordinated debt of bank holding companies: They provided a capital cushion to help protect policyholders from any future unpleasantness. All told the industry raised $8 billion this way. A selling point for the notes was that they were backed by yet other insurance companies.
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