U.S. p&c insolvencies drop in 2003 on price corrections

Rising premiums in both the commercial and personal lines p&c sectors led to the lowest level of insurer insolvency in the U.S. since 1998, says rating agency Standard & Poor’s. Reporting on 2003 yearend figures, S&P says a total of 28 insurers were placed under regulatory supervision, with 20 of these from the p&c sector. This compares with 28 p&c carriers falling under supervision in 2002, and 24 in 2001.Nonetheless, S&P is maintaining its negative outlook on the commercial lines segment, on the basis on lingering liability claims issues. Along with asbestos, S&P notes construction-defect and silica liabilities are beginning to capture insurers’ attention. Along with this are continuing concerns over workers’ compensation, the largest commercial line in the U.S.. However, S&P adds that while workers’ comp was the primary cause of 15 of the 28 insolvencies in 2002, it accounts for just five of the 20 reported in 2003.The rating agency does expect insurer premiums to outgrown claims in 2003, although modestly. But, with the industry under-reserved (excluding asbestos) by about US$60 billion, the commercial lines sector’s problems will not soon disappear. This is particularly true given analyst expectations of rates dropping by the end of 2004 and the threat of a return to competitive pricing.The news is brighter for the personal lines sector, which maintains a stable outlook on the back of rate increases in the homeowners and auto lines. S&P expects the personal lines combined ratio to be 103% for 2003, down from 109% in 2002, and 120% in 2001.While home and auto insurers are always wary of further government intervention in their product, S&P notes positive developments in the trend to allowing mold exclusions in homeowners’ policies, and the removal of the “take all comers” rule for New Jersey auto insurers, a market which had been in crisis. As well, despite a high level of catastrophe losses in 2003 due to hurricanes and wild fires, S&P says personal lines insurers had sufficient spread of risk geographically and by business line to avoid a ratings hit.