Roanoke firm has lost most of its capital

A small Virginia insurer, hammered by having put its faith in Fannie Mae and Freddie Mac bonds, has lost almost all its capital since it was forced into receivership seven months ago.

Shenendoah Life had just $4.4 million in surplus as of June 30, according to its filings with the State Corporation Commission.

It had had $78.3 million of surplus as of Sept. 30, 2008, according to the filings. That figure is after accounting for funds it had set aside as a $1.28 billion reserve to pay claims.

Roanoke-based Shenandoah had paid $38 million in death benefits, $26 million in disability benefits, $39.5 million in annuity payments and $51 million to customers cashing in their policies during the first nine months of 2008.

The commission's Bureau of Insurance, which took over Shenandoah in February, said that despite the drop in the company's capital, the company will still be able to pay claims.

Commissioner of Insurance Alfred W. Gross said Thursday he is optimistic the company can be rehabilitated.

Gross has asked the SCC to approve a proposal to sell Shenandoah's group insurance business, which provides life, accidental death, disability, dental and vision coverage to about 16,500 employers.

The sale to Assurant Inc. should increase Shenandoah's surplus by about $500,000, the bureau estimates. It will also move millions of dollars of future claims off Shenandoah's books, which would ease financial pressure on the company.

The bureau put the Roanoke-based company into receivership in February because of its poor financial condition.

A major part of its $1 billion of investments in bonds were in securities issued by the Federal National Mortgage Association, or Fannie Mae, and the Federal Home Loan Mortgage Corp., or Freddie Mac. They are the home lending agencies that the federal government took over last September as the subprime lending crisis peaked.

Those bonds and the insurer's other investments are what back its promises to pay claims.

Under the receivership, Shenandoah has stopped paying dividends to policyholders, making policy loans and cashing in policies when policyholders surrender them, to slow the flow of cash out. It also stopped selling new policies, to avoid taking on new potential claims on its shrinking assets.

When the state took over the company, it had issued 198,000 life insurance policies, 21,000 annuities, 18,000 health policies, mainly for dental coverage, as well as 16,500 group-insurance policies.

The last time the Bureau of Insurance put an life insurance company into receivership was in 1999. It sold that company, Settlers' Life, seven months later.

Contact David Ress at (804) 649-6051 or .