U.S. insurance companies impairments rise in 2019 due to fraud, bribery investigation
OLDWICK: As many as ten insurance companies became impaired in 2019, compared with three in 2018, including five affiliated life and annuity insurance companies related to a federal investigation into wire fraud and bribery, according to a new AM Best special report.
Three health insurers, one life reinsurer and one long-term care accident & health (A&H) insurer made up the remainder of the 2019 impairments, as detailed in the Best’s Special Report, titled, “2019 U.S. Life/Health Impairments Update.” The five affiliated companies were part of the Global Bankers Insurance Group, whose owner was sentenced to prison on wire fraud and bribery charges.
The report states that from 2000 to 2019, 175 life and health insurers became impaired. These impairments consisted of 137 insolvent liquidations, 36 rehabilitations—of which 14 were closed during the period and 22 remained open as of this report—and two conservation actions.
AM Best defines impairments as being situations in which a company has been placed, via court order, into conservation, rehabilitation or insolvent liquidation. Supervisory actions undertaken by insurance department regulators without court order are not considered impairments, unless delays or limitations were placed on policyholder payments.
Specific causes have been identified for some of the impairments, with most falling into the category of general business failure arising out of some combination of poor strategic direction, weak operations, internal controls weaknesses or underpricing and under-reserving of the business.
The most relevant aspect of these impairments may be the products the companies offered and the products’ potential risks.
During the 2000-2019 period, 69% of the impairments were A&H or health insurers, while 15% were small life insurers that focused primarily on selling lower-value industrial/burial policies or stipulated premium business in southern U.S. states.
The remaining 28 impairments (16%) involved fraternal entities (6), annuity writers (11), and other companies with life or combined life, annuity and health business (11).
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