Financial impairment frequency (FIF) typically rises both during, and shortly after periods of economic and financial market stress, says A.M. Best. in its "2010 Special Report: U.S. Property/Casualty – 1969-2009 Impairment Review.” This is evident in the 2008 and 2009 numbers being reported by the company.
U.S. property/casualty insurer financial impairments have more than tripled since 2007, the last full year before the current recession, rising to 18 in 2009, up from 16 in 2008 and from five in 2007. Six of the 2009 impairments were homeowners and residential insurers affecting some 200,000 policyholders.
The company designates an insurer as a Financially Impaired Company (FIC) as of the first official regulatory action taken by an insurance department, whereby the insurer’s:
• ability to conduct normal insurance operations is adversely affected
• capital and surplus have been deemed inadequate to meet legal requirements, and/or
• general financial condition has triggered regulatory concern
Most of the 2009 P&C impairments resulted from under reserving, underpricing and too rapid growth in the years immediately preceding impairment. Only three impairments were directly attributable to investment problems/understated assets. Three 2009 impairments were related to alleged fraud, and another two were caused by affiliate problems.
By line, homeowners and residential (six), workers’ compensation (four) and commercial auto liability (four) accounted for 78% of the P&C impairments last year. The other four impairments were one each for financial guaranty, medical professional liability, private passenger nonstandard auto and title insurance. The 18 2009 impairments:
• American Keystone Insurance Co.
• Atlantic Mutual Insurance Co.
• Astraea RRG Inc.
• Coral Insurance Co.
• Eastern Casualty Insurance Co.
• First Commercial Insurance Co.
• First Commercial Transportation and Property Insurance Co.
• Lincoln General Insurance Co.
• Magnolia Insurance Co.
• National Title Insurance Co.
• Northern Capital Insurance Co.
• Northern Capital Select Insurance Co.
• Old American County Mutual Fire Insurance Co. (At time of the report publication, the company had appeared to have emerged from the noted impairment, but was not currently followed by A.M. Best Co.)
• Park Avenue Property and Casualty Insurance Co.
• Professional Liability Insurance Co. of America
• Southeastern U.S. Insurance Inc.
• Syncora Guarantee Inc.
• Thureus Insurance Group
Eight of the 18 FICs in 2009 hail from Florida. Many Florida insurers have been struggling with underwriting losses and depleted policyholders’ surplus. A.M. Best notes that full development of 2009 impairments may not be evident for some time. This was the case for 2008 impairments, which have risen to 16, from the seven reported in A.M. Best’s April 6, 2009 impairment study:
So far, A.M. Best has identified four P&C financial impairments in 2010, although the full development of 2009 and 2010 impairments may not be evident for some time. Overall, this year’s study has an additional 45 companies, seven of which were for 2008.
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