Seven insurance company write-downs were identified in the U.S. property and casualty insurance industry in 2020, with five of the seven involving auto insurers, according to a special report by AM Best.
Last year’s number was an improvement over 2019, when 13 impairments were identified, says the report titled “2020 US Property / Casualty Impairments Update.”
AM Best detailed the weakened insurers of 2020 as follows:
- Two private passenger standard auto editors, consisting of a reciprocal exchange from Texas and an insurer from New York,
- Two non-standard individual auto insurers with activities underwritten in several states, mainly Florida and Texas,
- A Risk Retention Group (RRG) that has provided commercial auto and third party liability insurance to independent owner-operators and small trucking companies in seven states, primarily California (where the liquidator has filed a federal lawsuit against the president and several outside advisers alleging that the defendants had falsified bank documents to conceal the financial position of the entity)
- A workers’ compensation insurer with business written primarily in New York and New Jersey and
- A title insurer who writes policies primarily for homeowners and mortgagees of residential properties in New York City.
All of the 2020 reductions in value have been placed in compulsory liquidation.
AM Best defined impairments as situations in which a company has been placed, by court order, in custody, rehabilitation or insolvent liquidation. Supervisory actions taken by state insurance department regulators without a court order are not considered impairments unless delays or limitations have been imposed on policyholder payments.
Trends in depreciation over the period 2000-2020
The report then followed the depreciation trends for the period 2000-2020. AM Best identified 395 P&C insurers with impairment during these years, with the main line of business being workers’ compensation, which accounted for 26% of impairments during the period. “The most notable changes over the 20-year period have been the reduction in impairments of workers’ compensation insurers, the recurrence of difficulties for insurers in the medical professional liability segment and the general reduction in impairment in general” , indicates the report.
Over the past 20 years, personal insurers accounted for 28%, split between passenger cars (20%) and owners (9%). Private automobile can be further broken down as standard (10%) and non-standard (10%) auto insurers. Commercial insurers accounted for 22%, split between other types of commercial liability / multi-risk (14%) and commercial automobiles (8%). The remaining 24% was distributed among the specialized ranges.
“Specific causes have been identified for some of the impairments, most falling under the category of general business failures resulting from a combination of poor strategic direction, weak operations, weaknesses in internal controls or underpricing and underpricing. -booking of activity, ”the report said. “The most relevant aspect of these impairments may be the products offered by these companies and the potential risks of those products.”
Digging into the causes of 97 of the failing insurers, AM Best found that the number one reason a business failed was fraud or suspected fraud – affecting 25 businesses over the 20-year period. Affiliate issues resulted in 22 write-downs, while catastrophic claims were attributed to 21 write-downs. Sixteen companies depreciated after growing rapidly, and investment losses were a significant factor in 11 write-downs, AM Best said.
Finally, one insurer was written down due to reinsurance failure and another was put into liquidation after marketing guaranteed insurance products without a license.
“The most notable changes over the 20-year period have been the reduction in impairments of workers’ compensation insurers, the recurrence of difficulties for insurers in the medical professional liability segment and the general reduction in impairment in general” , indicates the report.
During the 20-year period, AM Best noted that the write-downs consisted of 321 insolvent liquidations and 74 rehabilitations, of which 37 were closed during the period and 37 remained open. In addition, there were 54 holdings, all of which led directly to rehabilitation or liquidation.
USA Carriers Auto Property Casualty AM Best Casualty
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