Alliance Study Says P/C Guaranty Fund Assessments Hit 15-Year High

April 17, 2003

Payments by private insurers to state property/casualty guaranty funds have hit a 15-year high, spurred by increased insolvencies, according to a study by the Alliance of American Insurers.

Net assessments paid by property/casualty insurers to guaranty funds totaled $735 million in 2001, the latest figures available. This is more than twice the $328 million 2000 net assessment and second only to the 1987 net assessment of $903 million.

“The rapidly rising assessments are a major concern of insurers,” said Roger Kenney, associate vice president of research for the Alliance and author of the study. “Unfortunately, I expect them to rise even further in the next couple of years as the result of recent major insolvencies that include those of Reliance, Superior National, California Compensation, PIE Mutual and others.”

Kenney noted that these assessments “are particularly insidious because they represent overhead that a company cannot avoid and has absolutely no control over.”

The findings of the Alliance report, Guaranty Fund Assessments 2001, is the net result of 32 funds levying assessments amounting to $739 million being offset by $4 million in recoveries from two guaranty funds.

Of the guaranty funds making assessments, seven accounted for 60 percent of the total. Florida made the largest assessment at $122 million, followed by California at $115 million. The other four funds: New Jersey, Tennessee, Georgia and Connecticut, each assessed between $30 million and $60 million.

The Midland Insurance Co. insolvency is reportedly the costliest property/casualty insurance insolvency on record. Through year-end 2001, expenditures amount to $540 million, followed by American Mutual Liability and California Compensation, with expenditures through year-end 2001 of $448 million and $383 million, respectively. California Compensation also had the largest expenditure in 2001 at $318 million.

Copies of the Alliance report are available free on the Web site to members with a registered password at www.allianceai.org; non-members pay $15 plus shipping and handling.

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