James River Insurance Retains Rating After Dropping Its Biggest Customer, Uber

By | October 18, 2019

Ratings agency A.M. Best said its ratings of James River Insurance remain unchanged after the insurer said it would be cancelling its business with ride-hailing giant Uber affiliate, Rasier, its largest client.

A.M Best said the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Ratings of “a” of the rated operating entities of James River Group Holdings, along with the Long-Term ICR of “bbb” of JRG Holdings, remain unchanged. It also said the outlook of these ratings is stable.

On Oct. 8, the specialty insurer delivered a notice of early cancellation, effective Dec. 31, 2019, of all insurance policies issued to Rasier and its affiliates. These policies are included in the insurer’s commercial auto line of business within its excess and surplus lines segment. A majority of the insurance policies were due to expire on Feb. 29, 2020.

“This account has not met our expectations for profitability, and we think it best to terminate the underwriting relationship as of year end, ” said J. Adam Abram, chairman and chief executive officer, James River.

A.M. Best said it does not expect any significant impact to JRG Holdings’ balance sheet strength, operating performance, business profile or enterprise risk management from the decision to dump Uber.

James River also announced a pretax, adverse development of between $55 and $60 million, net of reinsurance recoveries and reinstatement premiums. It said these losses are primarily related to its commercial auto line of business within its Excess and Surplus Lines segment, for the 2016 and 2017 underwriting years. The remainder of the losses, less than $10 million, are related to previous underwriting years in the casualty-reinsurance segment, the company said.

The company also reported 72% growth in its noncommercial auto Excess and Surplus Lines gross written premiums, compared with the prior year’s quarter.

James River was a pioneer in offering insurance to transportation network companies including Uber. It is not alone in struggling to make a profit in the commercial auto sector; that has been a challenge for years. Following a statutory combined ratio of 108% in 2018, the segment is poised for a ninth consecutive year of underwriting losses in 2019, according to Fitch Ratings.

“Pricing increases alone have been insufficient,” said James Auden, managing director in Fitch’s Insurance Ratings Group. “The chronic underwriting losses in commercial auto in the last eight years reveal a need for change in several areas including risk selection, underwriting practices and claims.”

As for Uber, it will not be left bare by the exit of James River. The company told Wall Street Journal it expects it will bring on another insurer to replace James River to join with others with which it still does business.

Allstate provides Uber with commercial auto insurance in some states. Uber has partnered with Allstate, Farmers, James River Insurance, Progressive and other carriers on coverage for its drivers that supplements their personal auto policies that do not cover commercial use. Various other insurers including Geico, Slice, State Farm, American Family, Liberty Mutual, Mapfre, Mercury, Erie, Travelers and MetLife have come out with their own insurance policies for drivers.

Why Uber ‘Depends Heavily’ on Insurance

Uber depends and spends heavily on insurance from private insurers and its own captive.

“Our business depends heavily on insurance coverage for drivers and on other types of insurance for additional risks related to our business,” the ridesharing pioneer noted in its initial public offering (IPO) documents earlier this year.

In addition to insurance related to its ridesharing products, Uber carries other automobile insurance coverage for owned vehicles and employee activity, as well as insurance coverage for non-automotive corporate risks including general liability, workers’ compensation, property, cyber liability, and director and officers’ liability.

Traditional insurers aren’t handling everything. Uber also has a captive insurance subsidiary to cover for certain risks including auto liability, uninsured and underinsured motorist, auto physical damage, general liability and workers’ compensation. Its Hawaiian captive company, called Aleka Insurance Inc., is managed by Aon. Its smaller rival Lyft also has a Hawaii captive insurer, Pacific Valley Insurance Co.

Uber faces many potential liabilities, some that come with the field of transportation and others that come with forging a new industry. There are traffic accidents and injuries, assaults on passengers, even e-scooters left on sidewalks. Like every business, Uber faces cyber risks. It also faces challenges to how it classifies and treats its independent contractor drivers.

Then there the risks to its brand and reputation from all of the negative publicity stemming from what it calls its “workplace culture and forward-leaning approach” to operations, compliance and personnel under previous management.

At the end of last year, Uber had insurance reserves of close to $3 billion set aside. That was a big jump from 2017, when it had $2 billion in reserves. The 2017 reserve figure was itself a similar jump over 2016.

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