A.M. Best Co. Inc. says in a special report dated May 2 says that most of the 2010 financial impairments at 11 property and casualty insurance companies were as a result of difficulties from deficient loss reserves and inadequate pricing.
In a series of studies on insurer financial impairments, the Best finds seven commercial carriers among the 11 impaired in 2010: four liability and three workers’ compensation insurers, with the remaining four a private-passenger auto insurer, two title insurers and one financial-guaranty insurer.
Compared to 2009 in which six homeowners or residential-property insurers failed, none became impaired in 2010.
According to the report, 54.5 percent of the 2010 impairments (six companies) were primarily caused by deficient reserves or inadequate pricing, while 18 percent (two companies’ impairments) were directly attributable to investment losses.
Historically, over a study time horizon dating back to 1969, Best finds that deficient loss reserves have been the dominant cause of impairments—fueling 40 percent of the problems. In the 1969-2010 time period, rapid growth was the next most frequent impairment-driver, fueling nearly 14 percent of them.