Reliance Insurance Under Regulators’ Control

State insurance regulators Tuesday assumed control of financially troubled Reliance Insurance Co. and will review the company’s finances to determine if it should be liquidated.

“At this point we have taken control,” said Insurance Commissioner M. Diane Koken. “We will analyze the financial position . . . Although we remain optimistic, there is a possibility that this will not remain in rehabilitation, it will go to liquidation.”

Koken said it could be six months or more before the department is able to make a decision about the company’s future.

The department has posted a financial observer at the company since April, but did not assume control of the company until the Commonwealth Court granted its request Tuesday afternoon, Koken said.

“Rehabilitation will enable us to immediately protect and preserve for policyholders all of Reliance’s assets,” Koken said, adding that she had hired a team of consultants that were already at Reliance to assume control of the company’s operations and begin the financial review.

Reliance Group defaulted on more than $500 million in bond and bank debt last year and was delisted by the New York Stock Exchange. The company stopped writing new policies, and sold some businesses to Citigroup Inc. and other insurers.

Analysts said Reliance’s $2-billion debt poses the possibility of the largest bailout ever by state funds that settle claims for defunct companies by assessing other insurers, whose business and home policyholders end up paying the cost.

The Pennsylvania Property and Casualty Insurance Guaranty Assn. estimates Reliance losses in the state alone at $350 million, greater than the $300 million in Pennsylvania losses from the largest U.S. property and casualty insurance failure of the 1990s, the 1998 liquidation of Physicians Insurance Co.

Reliance is licensed to write coverage in all 50 states.