A.M. Best Special Report: Most U.S. Property/Casualty Impairments Since 2000 Occurred in Workers’ Compensation Industry

OLDWICK, N.J.--()--Over a 16-year period from 2000-2015, the U.S. workers’ compensation industry experienced more financial impairments than any other property/casualty line of business, according to a new A.M. Best special report.

The Best’s Special Report, titled, “2015 Property/Casualty Impairments Update,” notes that during the study period, 337 property/casualty insurers became impaired, with line of business details located for 323 of those impairments. The workers’ compensation sector, along with two accident and health insurers and one company focused on employers liability coverages, composed 28% of the 323 impairments, more than any other property/casualty line of business. Personal lines insurers represented 28% of the impairments as well, split between private passenger auto (20%) and homeowners (8%). Private passenger auto can be further categorized as standard and non-standard auto insurers, and represented 11% and 9% of the impairments, respectively. Commercial lines insurers represented 22% of the impairments, split between other liability/commercial multi-peril (15%) and commercial auto (7%). The remaining 22% of impairments were split among specialty lines.

Overall, 12 property/casualty impairments were newly identified for 2015. In contrast to A.M. Best’s prior studies, impairments were defined as being situations in which a company has been placed, via court order, into conservation, rehabilitation and/or insolvent liquidation. Supervisory actions undertaken by insurance department regulators were not considered impairments for this study unless limitations were placed on payment of policyholder obligations.

The study shows that over the 16-year period there were specific causal factors for some of the impairments, but most of these situations fall into the category of general business failure arising out of some combination of poor strategic direction, weak operations, internal controls weaknesses and/or underpricing and under-reserving of the business.

For the 16-year study period, there were 33 risk retention group (RRG) impairments, representing 10% of the total. However, looking at the study period in bands showed that RRGs represented 4% of impairments in 2000-2005; 12% of impairments in 2006-2010; and 18% of impairments during 2011-2015. The report notes that to some extent, the growth in RRG impairments reflects the growth in popularity of this structure. Another significant factor, however, may be unrealistic loss, operating expense, and pricing assumptions being utilized at these self-insurance entities.

Of the 337 impaired companies during the period, 42% were rated by A.M. Best at some point during the period between the date of impairment and three prior year-ends. The study concluded that there has been a significant decline in the number of impairments that A.M. Best has been involved in rating in recent years. From 2006-2015, there were 175 U. S. property/casualty impairments, of which 21% were rated by A.M. Best at a point during the 10-year period, compared with 42% for the entire study period.

To access a copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=254754.

To access a copy of the life/health impairments special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=254775.

A.M. Best is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2016 by A.M. Best Rating Services, Inc. and/or its subsidiaries ALL RIGHTS RESERVED.

Contacts

A.M. Best
Anthony Diodato, +1-908-439-2200, ext. 5704
Managing Director
anthony.diodato@ambest.com
or
Christopher Sharkey, +1-908-439-2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, +1-908-439-2200, ext. 5644
Director, Public Relations
james.peavy@ambest.com

Contacts

A.M. Best
Anthony Diodato, +1-908-439-2200, ext. 5704
Managing Director
anthony.diodato@ambest.com
or
Christopher Sharkey, +1-908-439-2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, +1-908-439-2200, ext. 5644
Director, Public Relations
james.peavy@ambest.com