BI’s Article search uses Boolean search capabilities. If you are not familiar with these principles, here are some quick tips.
To search specifically for more than one word, put the search term in quotation marks. For example, “workers compensation”. This will limit your search to that combination of words.
To search for a combination of terms, use quotations and the & symbol. For example, “hurricane” & “loss”.
BOCA RATON, Fla.-The Home Insurance Co. is offering to pay $40 million to settle total obligations of about $245 million to a residual market workers compensation pool, a move that reflects the deteriorating financial condition of the insurer in runoff.
The attempts by The Home to settle what is its largest known obligation could signal its negotiating stance with other residual market insurance pools.
The current proposal is a little more than half the amount The Home offered the National Council on Compensation Insurance last summer to settle its obligation to the NCCI-administered pool, several sources close to the discussions said.
The NCCI balked at the earlier offer.
If the new reduced offer is accepted, other workers comp insurers that contribute to the pool, which reinsures residual market pools in about 25 states, will be called upon to make up the deficit.
The NCCI officials and insurer board members are meeting today to consider the reduced offer.
The Home first tried to negotiate a reduced payment to the NCCI last summer. The insurer suggested that its obligation of $245 million be discounted at about 7% annually to reflect future investment income, which would reduce a payment made then to about $156 million. The
*See The Home on page 5The Home
Continued from page 1
Home then made an offer to pay nearly 50% of the discounted obligation, or about $72.9 million.
The NCCI rejected the initial offer but countered that it would consider a payment of about $130 million.
The matter remained unresolved and little further action was taken until the past few weeks, when The Home reduced its offer further to $40 million.
The unusual negotiation stance of reducing an offer already rejected for being too low reflects the deterioration in The Home's financial condition, which was made public with the publication of its 1996 annual statement in March (BI, March 10).
Worse-than-expected losses at The Home resulted in it falling nearly $552 million short of its authorized risk-based capital requirements. On publication of the results, The Home was immediately placed under formal state supervision by the New Hampshire Insurance Department, which has jurisdiction over the Home.
Also influencing the reduced offer is the NCCI pool's position in the line of people seeking money from The Home.
As general creditors to The Home, the pool will not be compensated before the insurer's policyholders, who are first in line to receive payments.
If, as some believe, The Home does not have sufficient assets to meet all of its policyholder and creditor claims, the NCCI may ultimately risk receiving even less than the current offer from The Home.
Neither The Home nor the NCCI would confirm the details of the negotiations.
But The Home is negotiating with its creditors and policyholders to commute claims and other obligations, said Arthur Wilson, vp and controller of The Home.
"The deterioration in the financial condition (of The Home) is influencing the direction of the offers," he said.
The Home also has obligations to other residual market pools, Mr. Wilson said.
The financial condition of The Home is far worse than was generally thought last year, and that deterioration is reflected in the reduced offer, confirmed David Nichols, the examiner appointed by the New Hampshire department to oversee the runoff of The Home.
Under the terms of the supervision order, New Hampshire Insurance Commissioner Sylvio L. Dupuis has to approve any payment to The Home's creditors over $500,000.
The commissioner would likely view favorably any agreement that would preserve the orderly runoff of The Home, said Mr. Nichols. "But the commissioner also has the concern of allowing money to flow out of the company to non-policyholder creditors," he said.
The Home has been in a strained financial condition for several years.
In late 1994, the insurer was downgraded by rating agencies. It then became the subject of a takeover battle between an investor group led by John J. Byrne, which intended to inject new money into The Home and to keep it running, and the Zurich Insurance Group, which wanted to take over only the good business of The Home and place the remainder in runoff. Zurich refuses to reveal how much of The Home's business it renewed.
In June 1995, the Zurich deal was approved (BI June 5, 1995). Under the terms of the deal, Zurich provided a $1.3 billion stop-loss reinsurance program to pay The Home's liabilities once its assets have been exhausted.
The program also calls for Zurich to put up $290 million that would be needed to pay claims if The Home is allowed to use earmarked funds to make dividend payments to the holding company, Home Holdings Inc., for Home bond holders.
The runoff of The Home is being conducted by Risk Enterprise Management Inc., a Zurich-owned company in New York.
Few other workers comp insurers were willing to comment on The Home's offer prior to the NCCI residual pool meeting today.
But one insurance executive, who did not want to be named, said: "We've been expecting something like this. It was fairly clear when the Zurich took over The Home's business that the coverage didn't look adequate."
Some NCCI*board member insurers may hold out for a larger payment despite the apparent financial weakness of The Home.
"We feel that The Home's offer is far too low and that the industry needs a better deal," said a spokeswoman for Hartford Group Inc. in Hartford, Conn.