Pennsylvania Insurance Commissioner Diane Koken admitted defeat Wednesday in her Department’s battle to rehabilitate the 184-year-old Reliance Insurance Company, when Commonwealth Court Judge James Gardner Colins approved the PID’s petition to place it in formal liquidation.
“After extensive and diligent effort, we have determined that there is no alternative to the liquidation of Reliance Insurance Company,” said Commissioner Koken in a written statement. “The financial difficulties of Reliance are worse than we knew on May 29, when we obtained an Order of Rehabilitation. Further attempts to rehabilitate Reliance would be futile and would substantially increase the risk of loss to Reliance policyholders, claimants and creditors.”
Judge Colins had given the PID until December 4 to submit a rehabilitation plan, or to shut down the company, but recent negative developments apparently convinced Koken that reliance could not be saved. Its current deficit is over $1 billion, and it losing between $2 and $4 million a day.
The company’s 1st quarter 2001 results showed only increases in its negative surplus. Cash receipts, especially from reinsurance, have been diminishing, and the situation was “exacerbated significantly by the terrorist attack on the World Trade Center.” The PID’s financial model showed that “Reliance will be unable to pay policyholder claims as early as the fourth quarter of 2001,” which has already arrived.
The approval of the Order of Liquidation, which applies to Reliance and all of its subsidiary companies, “triggers the state guaranty associations to pay policyholder claims to the maximum levels allowed by law.” It also stops legal claims involving Reliance’s 75,000 policyholders for the next 90 days, but Commissioner Koken indicated that the PID would attempt to expedite the settlement of workers’ compensation claims and personal injury actions.
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