Insurance failures are driven increasingly by natural disasters, such as hurricanes, floods, earthquakes and wildfires. This is according to an annual report by Property and Casualty Compensation Corp. (PCICC).
The report, titled When, Where and How Often Insurers Fail, revealed that although insurers manage catastrophic risks well, recent data indicates that natural disasters have become a growing concern among property and casualty (P&C) insurers.
PCICC identified catastrophic risk as the primary cause of approximately 30% of global P&C insurance failures in 2021 and 2022.
“Historically, the drivers of failure have been well understood and include poor risk selection, bad pricing, inadequate loss reserving and corporate complexity,” say PCICC officials. “But our research also highlights a new and rapidly evolving solvency threat. More companies are failing due to natural catastrophes. Bluntly put, climate risk appears to be increasing solvency risk.”
PACICC has identified catastrophic risk as a primary or secondary cause behind the failures of the following insurers, including those in the U.S.
- Real Legacy Assurance Company (Puerto Rico, P&C, failed in 2017 due to Hurricanes Irma and Maria);
- Merced Property and Casualty Company (U.S., P&C, failed 2018 due to Camp Fire in California);
- Access Home Insurance Company, State National Fire Insurance and Americas Insurance Company (U.S., P&C, failed in 2021 due to Hurricanes Laura, Delta, Zeta and Ida); and
- FedNat Insurance Company (U.S., P&C, failed in 2022 due to an ice storm in Texas and Hurricane Ida in Florida).
PACICC officials say for future research the company will probe the contributing factors behind the failures.
“We will also focus on the economic magnitude of the P&C failures, such as the dollar amount of assessment when an insurance guarantee fund was involved, and the number of policyholders affected by the insolvencies,” say officials.