With the March 2021 Bedivere insolvency and an Arrowood insolvency seemingly on the horizon, now is a good time to check on the current state of insurance insolvencies in the U.S. property and casualty market. While there has been a good deal of press recently about property and personal lines insolvencies in Florida, I’m going to focus on insurers who issued significant general liability and umbrella policies in the 1960s, 1970s, 1980s, and 1990s.
The avalanche of asbestos and environmental claims in the 1970s and 1980s, and continuing litigation, led to many notable insurance company insolvencies and liquidations. Many such estates have already made final payments and closed, including Integrity, Reliance, and Transit. Others are close to winding up, including Highlands (the final claims amendment deadline passed on August 31, 2022) and Home (the final claims amendment just passed on January 26, 2023). Some estates from the 1980s remain open but are generally not accepting new claims; these include Mission, Midland, and Union Indemnity to name a few. Still others have only just begun, like Bedivere Insurance Company.
With the rapid increase in emerging torts—such as sexual abuse claims and the increase in claims activity around PFAS, coal ash, talc, and others—insurers with heavy exposure to the old historical CGL insurance policies may still be at risk of deteriorating financial condition, including insolvency. Traditional asbestos and environmental risks also remain.
The Role of Regulatory Failure
Insurance is a public good and, as such, is heavily regulated in the U.S. Unfortunately, many of these insolvencies point to regulatory failure. Recent examples include the OneBeacon/Armour transaction. As we have written before, the Pennsylvania insurance commissioner presided over extensive hearings and expert reports that demonstrated how under-capitalized the OneBeacon run-off companies were; the transaction was approved anyway. Seven years later, the companies (since consolidated and renamed Bedivere Insurance Company) were declared insolvent and put into liquidation. The estate is currently processing more than 1,000 claims received prior to the December 31, 2021 proof of claim filing deadline. These claims represent many times more policies, and the final payment of claims is years—if not decades— away. Even then, policyholders will receive only a fraction of their agreed claims.
Arrowood – Next in Line?
Arrowood Indemnity Company (formerly Royal Indemnity Company and other Royal companies in the U.S.) appears ready to join this infamous club. In 2007, Arrowood was spun off from the multinational Royal SunAlliance (“RSA”) insurance group via a management buyout. The Delaware Department of Insurance held extensive hearings on the proposed transactions. Policyholders objected and contended that the transaction would put them at risk, but the transaction was still approved. Now, instead of accessing additional capital from its insurance-underwriting parent in times of distress, Arrowood is on its own. The company’s full-year 2022 financial statements are due to be released any day now and KCIC will continue its reporting on Arrowood. We will be disappointed, but not shocked, if the reports demonstrate that Arrowood is under mandatory regulatory control, or possibly even insolvent.
Alternatives to Insolvency
Past regulatory failures lead to natural skepticism of new insurance business transfer (“IBT”) and corporate division laws from policyholders, which insurers can use to leave behind legacy business risks. One such motivating principle behind these laws is to transfer administration of legacy business to companies that may be able to run them off more efficiently, thereby freeing up capital that the previous owner can use for its ongoing business. It remains to be seen how popular these will become. We are aware of just two such transfers that have been approved in Oklahoma. Other states, such as Rhode Island, have similar statutes but have not seen any significant activity yet. IBTs typically do not require policyholder consent, so their widespread adoption may trigger significant pushback.
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Nick Sochurek has extensive experience in leading complex insurance policy reviews and analysis for a variety of corporate policyholders using relational database technology.Learn More About Nicholas