Reliance Insurance Company in Liquidation

October 4, 2001 - Acting Commissioner of Insurance J. Robert Wooley announced today a Pennsylvania judge has placed Reliance Insurance Company into liquidation. Yesterday's action creates the largest insurance insolvency the nation has ever seen, according to Wooley and Allen Edwards, executive director of the Louisiana Insurance Guaranty Association (LIGA).
Reliance, a Pennsylvania-based company, was licensed to write business in all 50 states and the District of Columbia. The states with the largest number of policy holders include California, New York, and Texas. Wooley says Reliance mainly provided business and workers' compensation insurance in Louisiana. "Now LIGA, the state insurance guaranty fund, will have to pick up the bulk of these claims," Wooley says. Guaranty funds are triggered when there is a finding of insolvency and a final order of liquidation is signed by a judge, adds Wooley.
Reliance Insurance Company was established in 1817, according to Allen Edwards of LIGA. Edwards says the company had a long history of selling insurance but eventually ran into trouble. "This company had an A plus rating with A.M. Best as recently as 1998," says Edwards. "In late 1999, the company boasted a $1.7 billion surplus, but soon faced financial difficulties after taking on too much debt and by underwriting business that resulted in some pretty huge losses," according to Edwards.
So in May of this year, Wooley says the Pennsylvania Department of Insurance placed Reliance into rehabilitation. Since that time, Pennsylvania's Insurance Department has been working with other state regulators and the National Conference of Insurance Guaranty Funds in an effort to save the company. "Reliance ultimately could not generate a significant cash flow so the Pennsylvania Department of Insurance had to seek a final order of liquidation," says Wooley.
Edwards says nationally, Reliance has liabilities in excess of $7 billion. In Louisiana, the company's liabilities are approximately $225 million, of which around $175 million are LIGA covered claims, including nearly $55 million in unpaid workers' compensation claims which will be paid in full by the guaranty fund. LIGA does not cover life, health, fidelity and surety or ocean marine insurance.
The Pennsylvania liquidation order specifically provides for the continued payment in full of claims under workers' compensation policies for up to 90 days from the date of the order. "The plan is to have no interruption in workers' comp claims payments during the transition period," Edwards says. The order further provides for a 90-day stay of all proceedings against Reliance during the transitional period.
According to Edwards, Reliance's Louisiana losses are manageable by LIGA, whose primary source of revenue comes from an assessment of its member companies. "The guaranty fund receives no money from the state of Louisiana," he says. While LIGA has not assessed its member companies in the last four years thanks to stability in Louisiana's insurance market, Edwards contends that the Reliance insolvency will force the LIGA board to consider a new assessment of fees. He says LIGA's assessment capacity is around $88 million annually, based on year 2000 premium writings.
Wooley and Edwards say state regulators and guaranty funds will continue to work together with Pennsylvania liquidators to ensure a smooth transition. "We all share the common goal of protecting consumers," Wooley contends.