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P/C insurer failures decline in 2006: S&P


The number of financially impaired U.S. insurers that required regulatory oversight last year fell to a level not reached during the past decade, according to rating agency Standard & Poor's Corp.

In 2006, eight property/casualty insurers failed, compared with 10 the year before and 13 in 2004.

Property/casualty failures historically account for most insurer failures, but represented an even greater proportion—73%—of total insurer failures in 2006, according to S&P. From 1996 through 2006, 60% of insurer failures were property/casualty companies, S&P says.

Among health insurers, one failed last year vs. three each in 2005 and 2004. Among life insurers, two failed last year vs. three each in the previous two years.

None of the 11 failed property/casualty, life and health insurers in 2006 was rated by S&P at the time it failed, the agency noted.

Meanwhile, 11 property/casualty insurers were placed under regulatory supervision last year, compared with 16 in 2005 and 19 in 2004, according to S&P.

S&P said several factors have contributed to the decline in failures, including improved earnings for property/casualty insurers, lower loss reserve deficiencies, continued enhancements of enterprise risk management and the unexpectedly calm 2006 hurricane season.

S&P also noted that the agency's updated approach to measuring insurers' capital strength is expected to generate greater capital needs for property/casualty insurers, "assuming no meaningful change in current risk profiles."

While S&P's outlook for the property/casualty industry is stable, the agency issued a cautionary note in its report: "The prospect of the Terrorism Risk Insurance Extension Act of 2005 expiring at the end of 2007, without being renewed, is a serious rating concern. The outlook could be changed to negative if an extension to TRIA or alternative permanent solution does not materialize in 2007."