AM Best Information Services

APRIL 14, 2021 10:32 AM (EDT)

Best’s Special Report: Auto Insurers Lead 2020 U.S. Property/Casualty Impairments

 Joseph Roethel
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Christopher Sharkey
Manager, Public Relations
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Jim Peavy
Director, Communications
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OLDWICK - APRIL 14, 2021 10:32 AM (EDT)

Seven insurance company impairments were identified in the U.S. property/casualty industry in 2020, six less than in the previous year, with all placed into insolvent liquidation, according to a new AM Best special report.

The Best’s Special Report, titled, “2020 U.S. Property/Casualty Impairments Update,” notes that five of the impairments involved auto insurers, with the remaining two a workers’ compensation insurer with business written primarily in New York and New Jersey and a title insurer that underwrote policies primarily for owners and mortgagees of residential properties in New York. Overall, from 2000 to 2020, 395 property/casualty insurers became impaired. These impairments 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 conservatorships, all of which led directly to either rehabilitation or liquidation. AM Best defines impairments as situations in which a company has been placed, via court order, into conservation, rehabilitation or insolvent liquidation. Supervisory actions undertaken by state insurance department regulators without court order are not considered impairments, unless delays or limitations were placed on policyholder payments.

Specific causes have been identified for some of the impairments, with most falling into the category of general business failure arising out of some combination of poor strategic direction, weak operations, internal controls weaknesses or underpricing and under-reserving of the business. The most relevant aspect of these impairments may be the products these companies offered and the products’ potential risks.

Primary line of business details were identified for 387 of the 395 impaired companies, with workers’ compensation being the leading line of business, accounting for 26% of the impairments. Personal lines insurers

accounted for 28%, split between private passenger automobile (20%) and homeowners (9%). Commercial lines insurers, excluding workers’ compensation, accounted for 22%, and the remaining 24% was split among specialty lines. Despite the number of workers’ compensation impairments, one of the most notable shifts over the 20-year study period have been the reduction in workers’ compensation insurer impairments, along with the re-emergence of difficulties for insurers in the medical professional liability segment and the general reduction in impairments overall.

The rise in risk retention group (RRG) impairments in recent years continued in 2020, accounting for one of the seven impairments. During the 2000-2020 period, 42 RRGs became impaired, representing 11% of the total. The growth in RRG impairments reflects the growth in the structure’s popularity, but they may also be due to business plans with unrealistic loss, operating expense and pricing assumptions as these self-insurance entities are formed and undertake operations.

To access the full copy of this special report, please visit .

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.