Louisiana Insurance Commissioner Jim Donelon has placed two “financially troubled” homeowner insurance companies in receivership over unpaid insureds’ claims resulting from Hurricane Ida.
Donelon said private companies were being rehabilitated, but not dissolved.
“Court-appointed receivers are now responsible for running every business,” a statement from the Louisiana Department of Insurance said. “The two companies are in rehabilitation, a sort of receivership aimed at solving the problems of the company.”
This decision is a step towards ensuring that “most policyholders with pending claims will be paid,” the statement said.
New Orleans Company, if they ultimately prove to be insolvent.
Rehabilitation is a process aimed at restoring the solvency of companies in financial difficulty, according to the LIGA.
“Often, companies placed in rehabilitation can then be placed in liquidation”, specifies the website of the entity.
When asked if taxpayers’ money would be involved in covering the losses of the two companies, LIGA executive director John Wells said in an email: “LIGA and its remediation program in Insolvency cases are funded by fees charged to Louisiana licensed insurers and funds recovered from insolvent companies. Insurers receive tax credits that apply over a ten-year period.
LIGA was created by the Louisiana legislature in 1970 to protect consumers of state insurance. If a member insurance company cannot pay the claims of its policyholders, LIGA can access up to 1% of the annual funds of all member companies to pay the financial obligations of a defaulting member.
The organization will cover up to $ 500,000 per event and a limit of $ 10,000 for unearned premiums, according to its website.
Donelon last week filed injunctions against the two regional insurance companies in the 19th District Judicial Court in Baton Rouge.
A spokesperson for the insurance department said it was too early to know how many policyholders have outstanding claims that businesses cannot pay, or the total amount of those claims.
A department statement said State National Fire had about 9,000 policies in total, or 0.14% of the Louisiana home insurance market, and $ 2,945,198 in direct written premiums. Access Home has approximately 19,697 policies, or 0.86% of the home insurance market, and $ 17,684,440 in direct written premiums.
A review of the department’s insurance industry database shows that State National Fire has $ 7 million in assets and Access Home has $ 31.5 million in assets. State National Fire also lists less than $ 300,000 in net income, while Access Home shows negative income of $ 3.5 million.
Donelon said insurance company failures are “relatively rare,” and added that state insurance officials have been closely monitoring the creditworthiness of property and casualty insurers since Hurricane Laura, the first of multiple reported natural disasters. hit Louisiana since August 2020.
“The combination of Hurricanes Laura, Delta and Zeta in 2020, which cost insurers $ 10.6 billion; Hurricane Ida, which is expected to cost insurers between $ 20 billion and $ 40 billion; and rising prices for labor and materials due to supply chain disruptions during the pandemic put several insurers at risk of running out of reinsurance coverage and running out of money ”, warned the department.
If an insurance company cannot be rehabilitated, the assets would be liquidated in the same way as a private bankruptcy process and the LIGA would take care of the claims of the insured.
“As insolvent companies do not have sufficient assets to pay claims, guarantee associations make a difference,” the organization said.
LIGA annual report 2020 showed that the backstop entity had $ 147.8 million in net assets and paid $ 4.8 million in claims last year.
“Net assets represent funds raised from member insurance companies, distributions from liquidators, interest income and other income in excess of funds disbursed to pay claims and expenses of the Association,” the Association said. report.
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