According to a report by AM Best, seventeen U.S. P&C insurance companies depreciated in 2021, seven of them due to catastrophic losses from hurricanes, mostly in Louisiana and Florida.
In addition to the five Louisiana-domiciled companies and two Florida-domiciled insurers, impairments identified in 2021 included four commercial auto insurers and a pair of Vermont-domiciled risk retention groups, Best’s special report, titled ” 2021 US Property/Casualty Deficiency Update. »
“Specific causes have been identified for some of the deficiencies, with most falling into the category of general business failures, resulting from a combination of poor strategic direction, weak operations, internal control weaknesses or under-funding. -pricing and under-booking of the business.The most relevant aspect of these write-downs may be the products offered by these companies and the potential risks of the products,” AM Best explained.
Impairments in 2021
Diving into the highlights of the causes of the impairments, AM Best said two Vermont-domiciled Risk Retention Groups (RRGs) were among those troubled companies. An RRG had provided medical malpractice insurance to emergency physicians in 25 states that saw an increase in high-severity claims. A second RRG provided commercial auto insurance to Domino’s Pizza franchisees and was declared insolvent when it became apparent that there was a high enough degree of uncertainty that the business could continue with solvent runoff, said the rating agency.
Additionally, two New York commercial auto insurers impaired in 2021. One of these insurers experienced volatile results following a change in ownership in 2015. A second auto insurer had come under scrutiny from regulators, who had requested an order to put it into liquidation. in 2017, but regulatory action took years because the company tried to cover up its insolvency, AM Best revealed.
Another weakened commercial auto insurer was affiliated with a weakened RRG in 2020 (caused by suspected fraud), AM Best said, noting that in March 2020 the regulator uncovered several areas of considerable concern regarding operations and the financial viability of the company, because the conduct of the management had placed the company in a situation which made subsequent insurance operations dangerous for its policyholders.
AM Best also cited the case of an impaired non-standard auto insurer that settled two large claims for amounts well in excess of policy limits, resulting in a material adverse reserve development. “Following continued deterioration and efforts to seek a buyer for the company or its volume of business without an acceptable proposal received, the regulator has determined that the company is operating in an unsafe financial position,” the rating agency said. .
Of the 17 insurers written off in 2021, 16 were placed in insolvent liquidation, according to the AM Best report.
Impairment trends 2000-2021
In addition to identifying impairments that occurred in 2021, this report also provides data for the period 2000 to 2021.
From 2000 to 2021, 413 P&C insurers impaired. The main line of business was workers’ compensation, which accounted for 24% of impairments, AM Best said, adding that personal insurers accounted for 29% – split between passenger cars (19%) and owners (10%).
Passenger cars can be broken down between standard (10%) and non-standard (9%) auto insurers. Commercial insurers account for 23% of write-downs, split between other commercial liability/comprehensive (15%) and commercial automobile (8%). The remaining 24% was split between specialty lines, noted AM Best.
“We have identified specific causes for 104 of the deficiencies. Catastrophic losses were the main cause of 28 deficiencies, while 25 were mainly related to fraud or suspected fraud,” the rating agency said. “Affiliate issues caused 22 write-downs, while 16 companies depreciated after experiencing rapid growth. Investment losses were a major factor in 11 write-downs. One insurer wrote down due to bankruptcy reinsurance; another company went into liquidation after marketing guaranteed insurance products without a licence.
Source: AM Best
Photograph: Lyndell Scott walks past the debris of her gutted home in the aftermath of Hurricane Ida in LaPlace, La., Friday, Sept. 10, 2021. (AP Photo/Gerald Herbert)
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