Ocean Tomo Managing Director Kevin Tullier and Manager Caroline McGrath explore Insurance Company Failures.
Ocean Tomo’s bankruptcy professionals have assisted management, state insurance departments and their respective counsel as they worked through the complexities of a failed insurance company, including some of the largest insurance insolvencies in history. These matters often involve assertions regarding the actions of an alleged bad actor, be that management accused of fraudulent behavior or otherwise breaching their fiduciary duties, auditors that failed to comply with professional standards, complicit managing general agents, etc.
However, in recent failures of insurance companies in Louisiana, the bad actor was named Hurricane Ida, which made landfall along the Louisiana coast as one the most powerful and destructive storms ever to hit the United States. Recent predictions for total Ida losses are between $20 billion and $40 billion. And the losses have been fatal to some insurance companies.
Access Home Insurance Company (“AHIC”) and State National Fire Insurance Company (“SNFIC”), both domiciled in Louisiana, were placed into rehabilitation by the Louisiana Department of Insurance in November. Media reports that both incurred losses that exceeded their cash on hand and the reinsurance they had obtained to protect themselves against such catastrophic losses.
AHIC reported losses from Ida totaling approximately $180 million but reported $115 million in reinsurance and cash available. Insurance companies often describe their reinsurance protection at levels intended to protect the company against events characterized by the likelihood of occurring in a stated number of years. SNFIC had reported that its reinsurance program was intended to protect it against a catastrophe that would occur once in a hundred years, which is the minimum required by the state of Louisiana (and other states). It wasn’t enough, so Louisiana and other states may soon reassess the minimum amounts required to do business in the state.
The Louisiana Insurance Guaranty Association (“LIGA”), established to protect policyholders in the case of insurance failures like AHIC and SNFIC, will have to step in to cover the short-fall from the failures, which is predicted to be $100 million. Louisiana Citizens Insurance Company, the insurer of last resort in Louisiana, has reported it will incur losses of $461 million from Ida, much of which will be covered by its own reinsurance programs.
As Kentucky and Midwestern states assess the damage from the devastating tornadoes that destroyed property and lives alike in those states, the insurance industry will again be reassessing what resources are necessary to protect policyholders and the companies themselves from bad actors… like Mother Nature.
Kevin Tullier performs forensic accounting and litigation support services in cases involving accounting and auditing malpractice, financial damages and valuations, insurance insolvencies, and reinsurance disputes, among others. He also performs outsourced accounting services primarily to clients in the insurance industry.
Caroline McGrath is a Manager in the Financial Expert business unit, working out of the Reston (DC Metro) office. She is responsible for providing litigation support and forensic accounting consulting services, including evaluation of economic damages, internal audit and auditor malpractice, insurance and reinsurance, spent nuclear fuel, and financial reporting matters.
To discuss these and other issues related to insurance company failures, please contact: Kevin Tullier, CPA, CFE, CFF at firstname.lastname@example.org or +1 703 654 1474; Caroline McGrath, CPA at email@example.com or +1 (703) 654-1408.