Missouri has own version of Enron

JEFFERSON CITY, Mo. -- The surprising insolvency of a large, aggressive 1945-chartered property and casualty insurance company in St. Louis strikingly resembles the recent collapse of Enron in Texas.

The Missouri insurance underwriter, once called the "crown jewel" of the state's chartered insurance firms, originally provided casualty coverage for transportation systems such as the St. Louis Bi-State Transit Authority and similar systems in Los Angeles, Houston and Baltimore.

Transit was sold in 1964 to a group of California investors, who promptly launched efforts to increase the client list by providing coverage through independent sales groups called Managing General Agents. But the company could not monitor closely the MGAs, which were writing new books on business the company had not previously engaged in.

In fact, the MGA business strategy actually began to resemble 27 separate companies. The liabilities created by the MGA underwriting were never fully accounted for on the company's balance sheet, which provides the first resemblance to Enron.

One MGA wrote policy limits on Transit policies between the late 1960s and December 1985 that exceeded $31 billion. It was just such underwriting by MGAs that actually led the company to a position of being unable to pay its claims.

A female executive for Transit wrote an internal memo to the chairman of Transit before adoption of the MGA business strategy that was similar to the memo that Sharron S. Watkins wrote to Enron's management. The memo said: "The issued policies will be like giving blank checks to the MGAs. We won't know how many will be issued and Transit is liable when the checks are cashed."

Like Enron, Transit's management did not listen.

The Transit Receivership has come a long way since it went insolvent in 1985, when it had only about $32 million in the bank. To date, the company has collected $1.445 billion and paid out more than $1 billion to policyholders. Most of the assets collected by the Receivership have come from agents who reinsured Transit policyholders.

The firm's collapse affected some 900 reinsurance companies in almost every state and in 30 foreign countries. Policyholders' claims ranged from coverage for asbestos damage to racehorses, satellites to airlines.

The firm still has nearly $100 million in assets to collect before completing Transit's liquidation, which is now viewed as rapidly approaching. The actual closing date will depend on the payment of Transit's remaining claims.