A surplus note is, in effect, as I understand it, the IOU issued by the insurance company to a lender when the insurance company borrows money from the lender.
- In other words, the insurance company gets a loan from a bank or from somebody else.
- The loan is used to make the company look economically healthy when it otherwise might be in trouble.
Now, what I can't believe is that insurance law allow these loans to be entered on the balance sheet as an asset rather than as both an asset and a liability, since the loan must ultimately be paid back.
- I don't understand that .. They call them surplus notes.
By 1988, surplus notes had inflated the capital of insurance companies by $4.4 billion.
Professor Belth of the Insurance Forum says that 35 life insurance companies would be insolvent today without the use of surplus notes to inflate their reserves.
Mr. Lennon, I want to tell you I think I read balance sheets-pretty well and P and L sheets pretty well.
- I have looked-at insurance company statements and I never had any idea what a surplus note was until I got into the intricacies of this hearing, and I am just amazed at what a surplus note is and the fact that it is permitted. I think it comes pretty close to fraudulent misrepresentation.
1990 1219 - GOV/NAIC Testimony - TRANSCRIPT OF PROCEEDINGS UNITED STATES SENATE Subcommittee on Antitrust, Monopolies and Business Rights, of the COMMITTEE ON THE JUDICIARY HEARING ON INSURANCE COMPANY SOLVENCY