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STANDARD & POOR'S: RISE IN INSURANCE FAILURES COULD CONTINUE
SAN ANTONIO, March 6 /PRNewswire/ -- A confluence of factors contributed to the failure of 35 insurance companies in 1999, Standard & Poor's said today. Among the most prominent factors contributing to the rising number of insurer financial problems are the liquidity crisis of General American Life Insurance Company, the related action against Integrity Life and the Martin Frankel scandal, the global ratings service said.
Standard & Poor's expects the trend to continue into this year -- exemplified by the recent failures of Harvard Pilgrim and Superior National -- due to increasing competition in the industry.
The number of insurance companies that experienced regulatory action due to financial stress increased to 35 in 1999, compared with 20 in 1998. The 35 companies that failed in 1999 represent only a small percentage of the 3000 plus companies operating in the United States, says the Standard & Poor's analysis of failed insurance companies released today. Insurance continues to be among the most financially strong industries in the U.S. economy.
Nonetheless, Standard & Poor's believes that it remains important for policyholders to choose a financially secure insurer since history has shown that failed insurers may take years to pay all of their liabilities. Policyholders of the failed organizations face potential delays, incomplete or disputed claim payments, and possible difficulties in finding replacement coverage.
In addition, more than a dozen managed care companies failed during 1999, leaving half a million members without health insurance. In addition, more than half of all health plans lost money in 1998, and considering statutory filings for 1999 to date, losses are persisting. Exacerbating the problem, solvency levels and requirements in many states are still very weak, pending adoption of the National Association of Insurance Commissioners (NAIC) risk based capital requirements. In 1999, only five
The main reasons for failures in the property/casualty sector were continuing competitive pressures which have led to inadequate pricing, leading to weakened reserve positions. The workers compensation business was particularly hard-hit in 1999, Standard & Poor's said.
While the life insurance market is considered to be the most stable among insurance sectors, Standard & Poor's believes that the majority of failures that could and have occurred are the result of a high concentration risk either on a company's asset or liability side.