Word: geico
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...surgery and some extensive aid from competitors, it is clear that Government Employees Insurance Co., the ailing former wonder child of the industry (TIME, July 19), will live. The latest signs of viability: after losing $124 million in 1975 and $40 million in the first six months of 1976, GEICO turned a small profit in the third quarter; it expects more black ink in the last three months. The company has sold a $75 million issue of preferred stock, mostly to its present shareholders, with surprising ease, giving it a desperately needed injection of new capital. And the price...
...GEICO should nonetheless go under, policyholders would have from 30 to 60 days, depending on their state, to find another insurer. Most would lose some part of the premiums they have already paid to GEICO. Claims against GEICO would be paid out of state-run insurance guaranty funds, which are empowered to assess other insurance companies up to 2% of their premium income. Those companies would then divide GEICO's assets - if any were left...
Since insurers are far from eager to be assessed to pay GEICO's claims, they may yet band together to save the company. Wallach and GEICO officials could conceivably soon decide to consider the reinsurance scheme a success if only 30% of the premiums are taken over. There is also a slim chance that the D.C. Department of Insurance may exercise its legal right to take over management of GEICO, though Wallach has not yet suggested it. Whatever happens, the fiasco could well rekindle congressional interest in setting up a federal body to insure insurers the way the Federal...
...Later, GEICO sold insurance to just about anybody, and for a while underwriting profits continued. During the rapid inflation of the early '70s, however, the costs of automobile parts and medical care-two chief items in claims against GEICO-rose even faster than prices generally. GEICO lagged in raising premium rates and failed to set up adequate reserves to pay claims. In 1974 GEICO squeezed out a $26 million overall profit, but in 1975 it plunged $125 million into...
Backstop Scheme. Some insurance officials feel that D.C. Superintendent Wallach let the situation drift too long before taking action. Says one executive: "It's inconceivable that a company of GEICO's size could run up such a loss in one year without Wallach saying 'Hey, fellas, what's going on here?' " In May GEICO directors ousted Chairman Norman L. Gidden, 59. New Chairman John J. Byrne, 44, has pulled GEICO out of New Jersey-a dismally unprofitable state-and pledged to trim by 20% the 2.4 million auto policies in force (there...