The property/casualty industry's impairment rate is at a 25-year low for 2005, according to a new report from A.M. Best.
Even with the five new 2005 property/casualty financial impairments that have emerged in the U.S since Best's last report in November 2005, the current count of 11 insurers equates to an impairment rate of 0.32 percent, or one in 313 companies. That is the lowest since the 0.3 percent impairment rate in 1980, and also less than 40 percent of the 37-year property/casualty industry average (0.83 percent).
A.M. Best designates an insurer as a Financially Impaired Company as of the first official regulatory action taken by an insurance department, whereby the insurer's:
*Ability to conduct normal insurance operations is adversely affected;
*Capital and surplus have been deemed inadequate to meet legal requirements; and/or
*General financial condition has triggered regulatory concern.
*State actions include supervision, rehabilitation, liquidation, receivership, conservatorship, cease-and-desist order, suspension, license revocation and certain administrative orders.
Best senior business analyst John Williams said that the profitable year the industry enjoyed contributed greatly to low level of impairment.
"And the improved risk management techniques of the industry have also helped," he said, noting that there were 16 impairments stemming from the 1992 Hurricanes Andrew and Iniki.
"But there were only two from 2004 and none from 2005, that we know of," he said.
A.M. Best emphasizes that the FICs in this study might not technically have been declared insolvent.
After incorporating all updates and revisions, the results of the current study are broadly consistent with the prior studies and interim updates. Nonetheless, the adjustments to data might make it difficult to compare the results of one study with its predecessor, Best noted.
All data are based on the performance of individual companies as opposed to holding companies. Companies excluded from the study are those established in a fraudulent or illegal manner and the U.S. branches of foreign companies where the branch is not incorporated in the United States.
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