While natural and financial catastrophes make headlines, they do not necessarily represent the biggest financial headaches for insurers, a new study released by
The report, based on A.M. Best’s proprietary database of financially impaired companies and supplemented with public data, finds the majority of the 11 financially impaired property/casualty companies in 2010 succumbed primarily to deficient loss reserves/inadequate pricing, with underlying themes of overstated assets and reinsurance disputes. “None of the 2010 impairments were directly attributable to catastrophe losses, although several had accumulated large underwriting losses over the prior three years,” the report states. “Only two companies in 2010 failed as a direct result of investment losses/overstated assets, and the impairments occurred in circumstances not related to the financial crisis.”
Indeed, the report identifies current, ultracompetitive market dynamics as the primary culprit behind impairments. “To build market share, younger companies frequently are more competitive in their pricing and underwriting, which leaves them more vulnerable to shocks in the operating environment,” the report states. “Some of the already vulnerable companies were pushed over the edge by the adverse operating environment particularly the commercial lines companies that dominate the list with seven impairments.”
