Pennsylvania Insurance Commissioner M. Diane Koken announced that the Commonwealth Court has granted her petition to enter an Order of Liquidation for PHICO Insurance Company of Mechanicsburg, effective immediately.
PHICO’s wrote primarily medical-malpractice insurance for health systems, hospitals and physicians and workers’ compensation insurance. The liquidation order is the second obtained by the Pennsylvania Department of Insurance in four months. It had previously obtained an order liquidating Reliance Insurance Company and its subsidiaries last October.
After conducting an extensive audit of PHICO’s reserves and liabilities the PID reached the same conclusion that it had with Reliance. It couldn’t be saved. “An accurate financial picture of PHICO has shown us that further attempts to rehabilitate the company would be futile,” Koken stated. “We had no choice but to liquidate PHICO in order to avoid further risk of loss to PHICO’s policyholders, claimants and creditors.”
PHICO has been administered by the PID since last August when financial statements revealed a surplus of only $6.8 million which the PID characterized as an “alarming decrease from its year-end 2000 surplus of more than $127 million.”
Koken’s announcement stated that the PID’s “analysis concluded that the company’s previous estimates of loss reserves were substantially understated. In fact, this recent analysis showed that a reserve deficiency exceeding $250 million existed as of June 30, 2001.”
“PHICO Insurance Company did not establish adequate reserves, nor does the company have the assets available to cover the shortfall. This gap between assets and liabilities renders the company insolvent, Koken’s announcement continued.
The liquidation order requires cancellation of all of PHICO’s policies within 30 days, and, as its remaining assets are inadequate to cover the claims of policyholders, will trigger payments from the State’s other licensed insurers into the state’s Guaranty Fund to cover the losses. Many of Pennsylvania’s insurers expect to see their own profits reduced as a result of the payments required following the Reliance and PHICO liquidation orders.