Best’s Special Report: 2017 Insurer Impairments in U.S. Property/Casualty Industry Contribute to Increasing Rate Among Risk Retention Groups

Seven new insurer impairments were identified in the U.S. property/casualty industry in 2017, compared with 14 in the previous year when 11 members of the Tower Group became impaired, according to a new A.M. Best special report.

The Bests Special Report, titled, 2017 Property/Casualty Impairments Update, states that three of the 2017 impairments were medical professional liability insurers, and two of those three were risk retention groups (RRG). Over a two-year span (2016-2017), five insurer impairments were medical professional liability insurers, with four of those being RRG. For the 2000-2017 review period, RRG impairments totaled 37 and represented 10% of the overall total. The number of RRG impairments showed an increasing trend during the study period, with more than half of them occurring after 2010, likely reflecting the growth in popularity of this structure. Another significant factor may be business plans with unrealistic loss, operating expense and pricing assumptions.

Overall, 362 property/casualty insurers became impaired from 2000 to 2017. The impairments consisted of 287 insolvent liquidations and 75 rehabilitations, of which 31 were closed during the period and 44 remain open at the time of this report. A.M. Best defines impairments as being situations in which a company has been placed, via court order, into conservation, rehabilitation or insolvent liquidation. Supervisory actions undertaken by insurance department regulators without court order were not considered impairments for this study unless delays or limitations were placed on policyholder payments.

Primary line of business details were determined for 353 of the 362 impairments, and for these 353 impairments, the leading line of business was workers compensation, which accounted for 26% of the impairments during the period. Personal lines insurers represented 29% of the impairments, split between private passenger automobile (20%) and homeowners (8%). Commercial lines insurers represented 22% of the impairments, split between other liability/commercial multi-peril (15%) and commercial automobile (7%). The remaining 24% of impairments were split among specialty lines.

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There were specific causal factors identified for 92 of the impairments. Fraud or alleged fraud was the leading specific cause and was present in 24 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. Investment losses were a significant factor in 11 impairments, while one suffered as the result of reinsurance failure and one was placed into liquidation after marketing warranty insurance products without a license.

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=279619.

A.M. Best is a global rating agency and information provider with a unique focus on the insurance industry. Visit www.ambest.com for more information.

Copyright 2018 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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