James F. Mahoney, Attorney
Commentaries
 
     

Workers' Compensation Insurers' Returns Deteriorate

Regardless of your P&C carrier, be watchful for premium audit requests and particularly of contentions that you've misclassified employees as owner operators

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According to a report compiled from the financial results of 49 public insurance and reinsurance companies, another dozen companies observed by Fitch Ratings posted a combined ratio over 100 in 2010 compared to 2009.

Standard & Poors Corp. recently downgraded American International Group's property/casualty subsidiary Chartis to A from A+ but revised its outlook on AIG and its operating companies to stable from negative.

"We lowered the Chartis rating because of the deterioration in the group’s operating performance,” not because of its $4.1 billion adverse prior-year reserve development, but because of poor fourth-quarter underwriting results and an increased combined ratio, which was 111.3% in the fourth quarter and 103.6% for all of 2010, revealing marked deterioration in Chartis' combined ratio.

A ratio in excess of 100% indicates an insurer's underwriting loss, i.e., they didn't take in enough premium. The entire P&C industry had a combined ratio of 102% in 2010; results were not helped at all by the paltry returns in the bond markets.

American International Group also said it faces increased risk of losses on its $46.6 billion municipal bond portfolio and that defaults could pressure the company's liquidity.

Regardless of your P&C carrier, be watchful for premium audit requests and particularly of contentions that you've misclassified employees as owner operators.