Several insurance companies were erroneously included in a list in Washington Business Nov. 23 of firms noted by the National Association of Insurance Commissioners for immediate attention by regulators. A corrected version of the list appears on Page 6 of today's Washington Business. (Published 11/30/87)
More than 100 companies writing life-health and property-casualty insurance in the District, Maryland and Virginia should receive immediate attention from state regulators because of potential financial difficulties, according to the National Association of Insurance Commissioners.
The association, a private organization of regulators, conducts an annual review of most U.S. carriers.
Companies that fail to meet industry averages on more than four financial ratios are then analyzed by NAIC examiners, whose confidential recommendations are sent back to the insurance departments of each state.
An "immediate attention" designation means that the insurance company should be given "highest priority in the surveillance process."
The early warning list, called the Insurance Regulatory Information System (IRIS), does not necessarily mean that a company is insolvent, but is an indication of potential long-term financial problems.
An "immediate attention" rating means that regulators should quickly review the company's financial situation to see if some action -- ranging from supervision to rehabilititation to liquidation -- is indicated.
An analysis of current-year IRIS data, based on financial reports filed by the companies at the end of 1986, found that 121 insurance carriers writing business in the District, Maryland or Virginia were designated for "immediate regulatory attention."
The vast majority do business in all three jurisdictions, each of which has about 1,200 insurance companies from around the nation permitted to do business.
Because IRIS contains sensitive information, state regulators and the industry they oversee have fought to keep the list secret for fear that policyholders would shun the companies.
Last week, Indiana University professor Joseph M. Belth, who obtained the list under a Freedom of Information Act request, published it in his newsletter, the Insurance Forum.
Belth revealed that over the past three years, 644 life-health companies and 811 property-casualty companies nationwide were cited by NAIC's examiners at least once. That represents nearly a quarter of all U.S. insurers.
Besides those carriers designated for immediate action, there are a larger number targeted for future action, an indication NAIC's examiners are less concerned about them.
"In my opinion," Belth said, "the designations suggest that an individual who has or is considering a relationship with one of the listed companies should exercise caution ... and obtain additional information."
The number of insurance insolvencies has increased dramatically in the past few years. Between 1969 and 1983, 84 companies went broke. In the following three years, 57 failed. NAIC warned in July that 513 property/casualty companies were in potentially hazardous financial condition. Of these, 92 were in liquidation.
In the 14 years following 1969, state guaranty funds were assessed $454 million to pay the liabilities of insolvent carriers. Nearly the same amount had to be raised to cover the insolvencies in the next three years.
Of the companies appearing on the early warning list over the past three years, 444, or 30 percent, write insurance in the District, Maryland and Virginia. Moreover, 35 of the companies have been on the "immediate attention" category for the past three years.
(A list of the companies doing business in this area accompanies this article. An asterisk indicates the company has been on the "immediate attention" list for three consecutive years. In many cases the name listed refers to a subsidiary of a large insurance corporation, not the parent itself.)
Among some well-known names on the list, The number of insurance insolvencies has increased dramatically in the past few years. Travelers Life & Annuity Co. was recommended for immediate attention for three years. In the third quarter of 1987, its parent company injected $40 million of new capital and surpluses to upgrade its IRIS ratio, a spokeswoman said.
Pruco Life Insurance Co., a subsidiary of Prudential Life Insurance Co. of America, also was listed. Pruco is there, said its president, Bill Kelly, because the company, established in 1982, is growing rapidly and new business traditionally shows up as a loss for accounting purposes. Since the parent company stands behind it, there is no reason to worry about Pruco, he added. Nevertheless, most of the companies listed are not household words and presumably have fewer resources than Pruco.
Moreover, it is impossible to tell if a particular company on the list is on the way up, as Pruco says it is, or down -- as is Mission American Insurance Co. of Los Angeles. It was placed in liquidation in March 1987, with liabilities exceeding assets by about $450 million. Mission was licensed in the District, Maryland and Virginia.
Regulators regard IRIS as just one tool in their own review of the companies licensed in their states. Edward J. Muhl, Maryland's insurance commissioner and president of NAIC, said, "We have looked at every one of those companies that have appeared on the list. We have a handle on solvency; we are trying to create a mechanism for detecting" trouble.
Muhl said the last liquidation in Maryland occurred in January 1985, when Eastern Indemnity, which wrote insurance for high-risk contractors, went under.
The District insurance department, on the other hand, does not use the IRIS list in evaluating insurance companies doing business in Washington. "We rely totally on our own materials," said James Montgomery, program man ager of the fire and casualty division.
A spokesman for the Virginia insurance department said the state corporation commission has suspended or revoked the licenses of 17 companies this year. All but one appeared on the IRIS list.
NAIC records show that about one company in 10 on the watch list, on average, goes into conservatorship or liquidation. As of Nov. 9, 21 insurance companies had been declared insolvent in 1987. At this rate, by year's end the number of insolvencies should exceed the record 23 listed in 1985.