U.S. insurance failures sink to record low in 2005

U.S. insurance failures fell in 2005 to a record-low level of 16, according to a report recently issued by the Standard & Poor’s rating agency.”In 2005, the number of U.S. insurance failures continued to fall, reaching levels not seen in the past decade,” noted Standard & Poor’s credit analyst Steven Dreyer. “Compared with 2004, not only has the total count of failures fallen, but the total asset size of failures has also dropped dramatically.” According to the report, the top five failures of 2005 had total assets worth US$112 million compared to total asset sizes of US$5.3 billion at year-end 2003.In total, 16 insurance companies were put under regulatory supervision in 2005 compared with 19 in 2004, and 28 in 2003, Standard & Poor’s reported. “The number of [property and casualty] failures decreased to 10 in 2005 compared with 13 in 2004, and 20 in 2003,” the report says. “P/C failures, which historically make up the bulk of the total count, constituted 63% of total failures, compared to a 10-year (1995-2005) average of 60%.”Cornerstone Mutual Insurance Co. was the largest U.S. failure of 2005, as measured by total assets of $29 million at year-end 2004.”In 2005, the P/C sector’s second-half earnings and surplus were negatively affected by towering catastrophe losses stirred by Hurricanes Katrina, Rita, Dennis, and Ophelia,” Standard & Poor’s noted. “These large-scale losses of US$56.8 billion (ISO) tested the industry’s capital adequacy, risk control capabilities, and risk-modeling effectiveness.”Although hurricane-related losses have not generated a surge of insurer insolvencies in 2005, it has opened up an arena of coverage disputes, enforcing a dire need to reevaluate enterprise risk management and to maintain underwriting discipline in 2006.”