What procedure is followed when an insurance company is unable to pay its debts?

The procedure followed when an insurance company is unable to pay its debts is primarily that the Commissioner intervenes for restoration. This intervention is a critical process designed to protect policyholders and ensure that the insurance company's obligations are met to the greatest extent possible. The Commissioner of Insurance has the authority to take various actions, including conducting examinations and overseeing rehabilitation efforts. This can involve restructuring the company’s operations, negotiating with creditors, or even making arrangements to transfer policyholders to financially stable insurers.

In California, the focus is on regulatory oversight to maintain the integrity of the insurance market and protect consumers. If an insurance company is found to be financially impaired, the Commissioner steps in with strategies intended to restore the company's financial health rather than allowing it to fail or go into bankruptcy immediately. Sharing the responsibility for ensuring that insurance companies remain solvent ultimately helps maintain public trust in the insurance industry.

The other options, such as filing for bankruptcy or ceasing operations, may occur as a last resort if rehabilitation fails, but those actions typically follow the regulatory attempts to restore financial stability. Shareholders taking management actions is also not the usual procedure in cases of insolvency; such decisions would likely be influenced or controlled by regulatory authorities during an intervention.