Best’s Special Report: Personal Lines Make Up Nearly Half of 2018 U.S. Property/Casualty Insurance Impairments

Eleven new insurance company impairments were identified in the U.S. property/casualty industry in 2018, four more than in 2017, with nearly half of the companies personal lines writers, according to a new AM Best special report.

The Best’s Special Report, titled, “2018 U.S. Property/Casualty Impairments Update,” states that of the five personal lines insurers, three companies wrote non-standard automobile with the other two writing homeowner insurance. The remaining six impaired insurers wrote a mix of lines of business. Overall, 374 property/casualty insurers became impaired from 2000 to 2018. The impairments consisted of 301 insolvent liquidations and 73 rehabilitations, of which 32 were closed during the period; 41 remain open as of this report. AM 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 365 of the 374 impairments, and for these 365 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 (21%) and homeowners (8%). Commercial lines insurers represented 21% 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.

There were specific causal factors identified for 95 of the impairments. Fraud or alleged fraud was the leading specific cause and was present in 24 of the impairments, while 22 impairments related primarily to affiliate problems. Catastrophe losses caused 20 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.

More recently, between 2016 and 2018, 32 impairments occurred, 11 of which were members of the Tower Group. Included in the 21 remaining impairments were six medical professional liability insurers, four of which were risk retention groups (RRG). RRGs made up 16% of impairments during this three-year period. To some extent, the growth in RRG impairments reflects the growth in popularity of this structure.

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=292462.

AM Best is a global credit rating agency, news publisher and data provider specializing in the insurance industry. The company does business in more than 100 countries. Headquartered in Oldwick, NJ, AM Best has offices in cities around the world, including London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2019 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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