“Troubled” Vt. captive insurance company?

Is a Vermont captive insurance company is jeopardy? Vermont is business home of one of the larger groups of captive insurance companies in the World.The Cayman Islands is the second largest,Bermuda number one . Captives are financial risk management insurance companies which insure investments of a parent companies. Burlington based Customer Asset Protection Company, known as Capco has drawn some attention in several newspaper articles and from U.S. Senate regulators recently regarding its ability to cover its obligations to the now bankrupt Lehman Bros. . Capco is owned by financial giants Morgan Stanley, Goldman Sachs, JPMorgan, Wells Fargo banks and smaller brokerage firms.
New York Times reports

“It has become clear that this entity is thinly capitalized Senate Finance Committee, Robert Menendez wrote in a letter to Treasury Secretary Geithner.
Capco, he said, potentially posed “systemic risk.” Capco was created in 2003 by Lehman and 13 other banks and brokerage companies as a kind of marketing tool. The pitch was that while Capco would not insure customers against investment losses, it would compensate them if the firms failed. Capco promises to provide virtually unlimited coverage above the $500,000 offered by the Securities Investors Protection Corporation(SIPIC) and its equivalent in Britain.

The New York State insurance department reviewed some industry estimates and Capco could face nearly $11 billion in claims but has only about $150 million with which to meet them.
All this should make for an interesting 24th Annual meeting of captive insurance professionals in Burlington, Vermont on August 11-13 titled Building Better Captives. Vermont Deputy Commissioner of Captive Insurance David Provost said to the Burlington Free Press that he believes those figures are inaccurate, but could not elaborate, citing privacy regulations. No one mentioned when the last audit was performed.
In an article about the state of South Carolina’s concerns with its own captive insurers it was noted that yearly audits are desirable but the frequency of audits in Vermont can be flexible. Vermont's captive law allows the state to expand the examination period from three to five years if the captive has been audited, and the division has used that flexibility to smooth its examination load.