State Filing Updates Cost Figures for Reliance Insolvency
As of the quarter ending September 30, 2006, Reliance Insurance Company, the largest U.S. property and casualty liquidation, has distributed nearly $1.3 billion to guaranty funds – most in the form of early access distributions. Overall estate expenses for the first nine months of 2006 total $79,698,417 according to the quarterly filing Pennsylvania Insurance Commissioner M. Diane Koken submitted January 26 to the Pennsylvania court.
Koken provided a comprehensive summary of the insolvency, noting that the 28-page filing does not fully reflect the effects of the liquidation on many of Reliance’s assets and liabilities because of several factors, including unknowns about the amount of recoverable reinsurance.
Assets and liabilities
As of September 30, the filing’s financial statement shows estimated total assets for the Reliance estate were $5.8 billion, with the most significant balance, $2.9 billion, relating to reinsurance receivables and future reinsurance recoverables.
Total invested assets were $1.3 billion. Koken put total estimated liabilities at $9.4 billion, with the most significant balance of $5.4 billion estimated for losses and Allocated Loss Adjustment Expenses (ALAE) to be processed on business classified by Reliance as direct insurance business.
Court approved Notice of Determinations (NODs) for class (b) creditors total $227 million, and losses and ALAE paid by the guaranty associations on business classified by Reliance as direct insurance business were $2.3 billion. Also included in total liabilities is $1.3 billion relating to losses and ALAE on assumed reinsurance business, which are class (e) general creditor claims unless valid offset rights exist.
The Special Purpose Statement of Changes in Policyholders’ Surplus as of Sept. 30, 2006 showed an estimated net deficit of $3.6, up from 2.7 billion at the date of liquidation.
Reinsurance Billings and Collections
For the first nine months of 2006, reinsurance collections were the primary source of cash receipts totaling $201.5 million, with total collections since the date of liquidation of $1.9 billion, according to the filing.
Cash disbursements were made up of loss and loss adjustment expenses of $0.6 million and operating expenses of $79.7 million, which includes reimbursed guaranty association expenses of $15.8 million. Total cash disbursements were $80.3 million.
As of September 30, Reliance reinsurance receivables and future reinsurance recoverables were $2.9 billion after deductions for estimated future uncollectible amounts and offsets. Reliance held approximately $637 million in collateral as security for the exposure.
Early Access
The filing indicated that Reliance has distributed more than $1 billion in cash advances to guaranty associations to pay claims; this, combined with an anticipated distribution of $200 million, put total early access payments to guaranty associations at about $1.275 billion. The filing noted guaranty associations have also been paid $152 million in administrative expense reimbursements, with another $36.7 million currently under review.
Total Estate Operating Expenses
As of September 30, 2006 Reliance’s year to date operating expenses were $79,698,417, according to the filing.
The reinsurance issue has posed challenges for the estate, Koken noted. “While there have been some reinsurers who have dealt with Reliance in a professional, responsive manner, many do not fall into this category,” she wrote.
Koken also pointed to the benefits of a generally positive relationship between the NCIGF, guaranty associations and Reliance in administering the insolvency.
“The NCIGF, most GAs and Reliance have established a close working relationship and will continue to address the extensive and complex issues involved in the Reliance Estate in a professional, mutually cooperative and beneficial manner,” Koken wrote.
Koken, who left the commissioner post soon after filing the report, recently has been replaced by current Pennsylvania insurance commissioner Randolph Rohrbaugh.
To review the complete filing click here.
