Of the 14 property/casualty impairments identified for 2016, 11 were members of the Tower Group, with the remaining three composed of two medical professional liability risk retention groups and a commercial lines reinsurer, according to a new A.M. Best special report.
In its report, A.M. Best provided details on the lines of business written by companies that became impaired during the 17 year period between 2000-2016.
“While there are specific causal factors identified for some of the impairments, most of these situations fall into the category of general business failure arising out of some combination of poor strategic direction, weak operations, internal controls weaknesses, and/or underpricing and under-reserving of the business,” said the report titled “2016 Property/Casualty Impairments Update.”
A.M. Best noted that its analysis of the 17 years revealed that can be drawn about the relative risks among them, such as the fact that the U.S. workers’ compensation industry experienced more financial impairments than any other P/C line of business.
During the study period, 354 P/C insurers became impaired, said the report, noting that the workers’ compensation sector accounted for 26 percent of the 345 impairments.
At the same time, personal lines insurers represented 28 percent, which is split between private passenger auto (20 percent) and homeowners (8 percent), added the report.
Private passenger auto can be further categorized as standard and non-standard auto insurers, and represented 12 percent and 8 percent of the impairments, respectively, A.M. Best said.
Commercial lines insurers represented 22 percent of the impairments, split between other liability/commercial multi-peril (15 percent) and commercial auto (7 percent). The remaining 23 percent of impairments were split among specialty lines, A.M. Best said.
The ratings agency defines impairments as situations in which a company has been placed, via court order, into conservation, rehabilitation and/or insolvent liquidation. Supervisory actions undertaken by insurance department regulators without court order were not considered impairments by A.M. Best for this study unless delays or limitations were placed on policyholder payments.
A.M. Best said that specific factors were identified for 91 of the impairments: fraud or alleged fraud was the leading specific cause and was present in 23 of the impairments, while 21 impairments related primarily to affiliate problems.
“Catastrophe losses, largely in Florida and Texas, caused 18 impairments while 16 companies suffered impairment after experiencing rapid growth,” the report added. “Investment losses were a significant factor in 11 impairments while one insurer suffered as the result of reinsurance failure and one company was placed into liquidation after marketing warranty insurance products without a license.”
Looking at the 17-year period in bands, the six years of 2000–2005 were the worst with 163 impairments, which included 52 workers’ compensation insurers, 43 personal lines insurers and 35 companies focused on commercial lines, A.M. Best said, noting that the 30 remaining companies for which lines of business can be identified in that band included 17 medical professional liability insurers.
The five-year band of 2006–2010 had a lower number of impairments (78), which included 16 workers’ compensation insurers, and 23 and 14 companies focused on personal lines and commercial lines, respectively, the report continued. There was just one medical professional liability insurer impairment, but title and warranty impairments grew to seven and four, respectively, during that period.
The period 2011–2015 showed an increase in impairments (99), which included 19 in workers’ compensation, 30 in personal lines and 22 in commercial lines, the report went on to say.
“Financial and mortgage guaranty insurers were the largest contributor to the remainder [in the 2011-2015 period] with six impairments during the period,” A.M. Best affirmed.
In 2016, 11 of the 14 impairments were members of the Tower Group, which included three workers’ compensation insurers, four personal lines insurers, and four commercial lines insurers. The three remaining impairments were comprised of two medical professional liability risk retention groups and a commercial lines reinsurer, the report said.
A.M. Best’s special report on P/C impairments can be downloaded via its website.
Source: A.M. Best