PAULA Financial announced that its underwriting subsidiary, PAULA Insurance Company, will voluntarily cease underwriting workers’ compensation business effective immediately.
This decision comes as a result of claims reserve development primarily from claims relating to accident years 1997-1999 on California workers’ comp business. The Company will focus its ongoing business activities through its agency subsidiary, Pan American Underwriters, and the third party administrator, Pan Pacific Benefit Administrators.
According to Jeff Snider, Chairman and CEO, PAULA Insurance would be a remarkably attractive platform to complement the company’s agency and TPA businesses save for its small capital base. Snider pointed out that steps taken in recent years to work with quota share reinsurance partners have been very effective, reducing leverage and protecting infrastructure as pricing normalizes and underwriting margins return to positive territory.
Snider added that the company began actively seeking new financing starting late summer 2001 in anticipation of sustainable improving underwriting trends, particularly in California, but its poor underwriting results for prior periods, not surprisingly, have had the effect of reducing outside confidence levels in what the company believes to be exciting current and prospective patterns in core underwriting classifications.
According to Robert Farnam, a Senior Financial Analyst & Actuary for A.M. Best, “They were looking for outside investors to see if they could salvage the capitalization at all.”
Snider remarked that the reinsurance instability following Sept. 11, uncertainty about the California environment and its largest writer of workers’ comp, the State Fund, the apparent ripple effect of Enron on actuarial conservatism, and a significant change in legislated benefits for injured workers in California, all equate to very expensive, scarce new capital.
“During this past year, they significantly downsized their premium writing, and they were trying to exit some of the markets that weren’t doing so well,” Farnam commented. “They may not have had the ratings from us that they would have liked probably, but they probably could have continued operations if the reserve charge was not too big.”
Farnam noted that 100 percent of sales for PAULA Insurance comes from workers’ comp underwriting, with 55 percent of sales in California, 18 percent in Texas, and the remaining percentage from other states.
For now, the company will be permitted to administer claims settlement runoff of PAULA Insurance. It is expected that A.M. Best will take appropriate steps to adjust the rating of the company to reflect the current developments.
Was this article valuable?
Here are more articles you may enjoy.
Berkshire’s ‘Most Important’ Biz Drives Q1 Results; GEICO Still Behind on Tech 
Growing Wildfire Risk Leaves States Grappling With How to Keep Insurers From Fleeing 
London Firms Are Letting More Staff Work Entirely From Home 
Growing Progressive Set to Hire 10,000+ in Claims, IT, Other Roles 
