[IG_Semmelweiss]

There are some gaps in this argument.

First, insurance boards by each state set the rules of the game, and one of the rules is to have an asset coverage ratio for the risk. Its effectively a sort of liquidity measure. Another one is minimum capital etc. Both are traditionally paid by the original owners.

So, in effect, if the insurer goes belly up owners do lose some of the capital, and owners cannot loot the assets, either. But I agree that overall it is the customer who is most short changed because although they will get a partial payout in a crisis, it wont match their expectation - most of the missing funds will be gone as you have explained.