5 Leading Insurers at Risk of Insolvency, Report Says : Business: A consumer group’s analysis of the top 20 companies warns that a severe crisis could cripple some firms and force the public to bail them out.
Five of the nation’s top 20 property and casualty insurance companies are so financially shaky that they could go broke in the event of a severe economic downturn, the consumer group Public Citizen said today.
Public Citizen said Aetna, American International Group, the Hartford Insurance Group, Liberty Mutual and United States Fidelity & Guaranty each triggered four of six factors that, according to the group’s analysis, would make them vulnerable to insolvency.
Spokesmen for some of the firms took issue with the report and said their companies are healthy.
The consumer group said none of the five companies are on the edge of insolvency but “the underlying weakness in their financial condition is clearly evident.”
The 124-page report said a combination of low premium volume, high claims and weak return on investment could mean potential financial trouble for the companies. It said all of these factors occur during an insurance cycle downturn.
“The failure of just one insurance giant would overwhelm the state funds designed to protect policyholders,” said Joan Claybrook, president of the consumer group. “The result could be another taxpayer bailout on the model of the savings and loan industry.”
Public Citizen made its analysis in part by examining shrinking surpluses, the ratio of surplus to losses and unusually wide premium swings over the years 1969 to 1988.
It also examined three short-term factors: the amount of risk the company insures compared to the size of its cushion against unexpected losses, the degree to which its investments could be converted into cash and the extent of its investment in high-risk junk bonds.
Howard Smith, senior vice president and comptroller for AIG, said he was “flabbergasted” that his institution would be considered vulnerable. “They either used the wrong facts or they got the wrong numbers,” he said.
Joyce Willis, a spokeswoman for the Hartford Insurance Group, said she questioned the credibility of the assessment.
Other companies included in the survey were Allstate, Cigna-INA, Chubb, CNA, Continental, Crum & Forster, Farmers, Fireman’s Fund, Kemper, Lincoln, Nationwide, St. Paul, State Farm, Travelers and USAA.
