The 21 financial impairments in 2012 are less than the P&C historical average impairment count of 25.8 and mark a significant decline from the 34 reported for 2011 by A.M. Best last year. It also was in stark contrast to the life/health industry's two 2012 financial impairments, which held the impairment count and rate for the life/health industry at its lowest in 50 years, according to A.M. Bests 2012 Impairment Review.
The rating agency points to the prolonged effects of the struggling economy as the main reason for the 2012 impairments. Only one 2012 FIC an automobile writer was the direct result of shock catastrophe losses, although catastrophe losses may have been a factor for some other impaired auto writers; they represented the largest number of impairments at six, or 30 percent of the total, according to the report. In 2012, more than a third of the total impairments were in auto liability, which the rating agency says has seen a marked increase in severity of bodily injury claims that has led many auto writers to respond with higher rates. About a fifth of the impairments were in other liability, heavily concentrated in construction-related business, and 14 percent were in workers comp, a line that continues to struggle with unprofitable underwriting despite increasing premiums and rates in the past two years.
The P&C industry's 2012 financial impairment frequency (FIF), which is a calculation of the number of financially impaired insurers against the number of companies in the P&C industry in any given year and, therefore, allows for meaningful comparisons between years, was 0.69 percent, below the industry's historical average of 0.82. The 2012 figure was roughly in line with the levels reported from 2008-2010, before the weak U.S. economy and troubled real estate industry drove the 2011 FIF to 1.11 percent.
The impairments also are an indication of the industry's overall deteriorating operating performance, according to the report. Over the past 20 years, more than 50 percent of the impairments in A.M. Bests study have been derived from three lines of business: private passenger auto liability (22.2 percent); workers compensation (19.7 percent) and homeowners multiple peril (9.2 percent).
So far, four P&C impairments have been reported for 2013 Builders Insurance Co. (workers comp), Nevada Contractors Insurance Co. (workers comp), Pride National Insurance Co. (private passenger auto liability) and Ullico Casualty Co. (workers comp).