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NEW YORK—Chartis Inc. has stopped writing stand-alone excess workers compensation coverage, American International Group Inc. said in a Securities and Exchange Commission filing.
But large self-insureds that purchased Chartis' excess workers comp coverage—without buying primary workers comp insurance from the insurer—have found other markets to provide them the insurance without price increases, said Pamela F. Ferrandino, casualty practice leader, placement for Willis North America in New York.
AIG's 10-K, which it filed last week, states that “in 2011, management implemented certain initiatives designed to provide for a more effective use of capital.”
Those initiatives include the decision to stop writing excess workers comp coverage as a stand-alone product, as well as restructuring some commercial casualty loss-sensitive programs from retrospective-rating premium structures to loss reimbursement deductibles.
AIG also said in its 10-K that excess workers comp coverage “has an extremely long tail and is one of the most challenging classes of business to reserve for because it is highly sensitive to small changes in assumptions—in the rate of medical inflation or the longevity of injured workers, for example—which can have a significant effect on the ultimate reserve estimate.”
In addition, claims estimates for excess workers comp insurance are highly sensitive to issues such as underlying policy pricing, claims settlement trends and the cost of treatment specialties, such as "pain management."
New York-based AIG said in the 10-K that its decisions, such as exiting excess workers comp and changing deductibles, decreased premiums in 2011 by about $0.6 billion.
“However, given the capital-intensive nature of these classes of casualty business, Chartis expects that over time, these actions will improve its results,” the company said.
AIG also cited the future impact of health care reform for its decision to exit the excess comp business.
“In 2010, excess workers compensation experienced significant prior-year development related to the passage of the Affordable Care Act in March 2010 as management concluded that there is increased vulnerability to the risk of further cost-shifting to the excess workers compensation class of business,” the company said in its 10-K.