NU Online News Service, April 29, 12:13 p.m.EDT

Financial impairments at 11 property and casualty insurancecompanies were severe enough to trigger regulatory action lastyear, but none of the problems were the direct result ofcatastrophe losses, A.M. Best reports.

Against the backdrop of news headlines about 2011 catastropheactivity and market implications, researchers at the Oldwick,N.J.-based rating agency released a report finding that 2010impairments were dominated by commercial-lines insurers whosedifficulties arose from deficient loss reserves and inadequatepricing.

Best's latest update in a series of studies on insurer financialimpairments finds seven commercial carriers among the 11 impairedin 2010—four liability and three workers' compensation insurers.The remaining four were a private-passenger auto insurer, two titleinsurers and one financial-guaranty insurer, Best says.

No homeowners or residential-property insurers became impairedin 2010, compared to 2009 when six such companies failed.

According to the report, 54.5 percent of the 2010 impairments(six companies) were primarily caused by deficient reserves orinadequate 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 thedominant cause of impairments—fueling 40 percent of the problems.In the 1969-2010 time period, rapid growth was the next mostfrequent impairment-driver, fueling nearly 14 percent of them.

During a webinar broadcast on PropertyCasualty360.com yesterday, twoprofessional-liability insurance executives—Paul Romano, presidentof OneBeacon Professional Insurance, and John Chace, OBPI seniorvice president and chief underwriting officer—referenced to theseconclusions in prior A.M. Best impairment studies, warning agentsand brokers to understand operating philosophies of the companiesthey do business with.

Specifically referring to a 2004 version of the A.M. Best study,which analyzed impairments between 1969 and 2002, Chace noted thatthree medical-malpractice companies highlighted in that priorreport "managed themselves out of the market" by "growing toorapidly" during the last soft market.

One impaired medical-malpractice carrier, which he did not identify, grewfrom writing $499 million in 2002 to over $1 billion in 2004, andits loss ratio soared from 52 to 118 over the same time period,Chace said during the webinar titled "You Can Make Market CyclesWork For You."

Romano, referring to conditions in the current market, said, "Weare competing with companies with quality financials—with 'A' orbetter ratings from A.M. Best," but he warned producers to digdeeper.

"How much of their prior-year redundancy are they using tooffset current year? And can [you] rely on them to maintain stablepricing levels going forward if in fact problems become evident intheir financial results?" he asked, referring specifically toBest's conclusion about reserve deficiencies driving the bulk ofimpairments.