(The Center Square) – Louisiana Insurance Commissioner Jim Donelon has forced two “financially troubled” home insurance companies into receivership over unpaid claims by policyholders stemming from Hurricane Ida.
Donelon said private companies are being rehabilitated, but not dissolved.
“Court-appointed receivers are now in charge of the operation of each business,” a statement from the Louisiana Department of Insurance said. “Both companies are in rehabilitation, a kind of receivership aimed at fixing the problems of the company.”
The move is a step toward ensuring that “most policyholders with pending claims will be paid,” the statement said.
The Louisiana Insurance Guarantee Association (LIGA), a nonprofit safety net entity, will pay claims after the assets of State National Fire Insurance Company of Baton Rouge and Access Home Insurance Company of New Orleans are liquidated. , if they ultimately prove insolvent.
Rehabilitation is a process to bring financially troubled companies back to solvency, according to LIGA.
“Often, companies placed in receivership can then be put into liquidation,” says the entity’s website.
When asked if taxpayers’ money would be involved in covering the losses of the two companies, LIGA Executive Director John Wells said in an email: “LIGA and its insolvency are funded by fees charged to Louisiana licensed insurers and funds recovered from insolvent corporations. Insurers receive tax credits which apply over a period of ten years.
LIGA was created by the Louisiana Legislature in 1970 to protect state insurance consumers. If a member insurance company cannot pay the claims of its policyholders, LIGA can access up to 1% of all member companies’ annual funds to pay a defaulting member’s financial obligations.
The organization will cover up to $500,000 per event and a $10,000 limit for unearned bonuses, according to its website.
Donelon filed injunctions last week against the two regional insurance companies in the 19th Judicial District Court in Baton Rouge.
A spokesperson for the Department of Insurance said it is too early to know how many policyholders have outstanding claims that companies cannot pay or the total amount of those claims.
A department release says State National Fire has about 9,000 total policies, or 0.14% of the Louisiana home insurance market, and $2,945,198 in direct written premiums. Access Home has approximately 19,697 policies, or 0.86% of the home insurance market, and $17,684,440 in direct written premiums.
A review of the department’s insurance industry database shows State National Fire has $7 million in assets and Access Home has $31.5 million in assets. State National Fire also lists less than $300,000 in net income, while Access Home shows negative income of $3.5 million.
Donelon said insurance company failures are “relatively rare” and added that state insurance officials have been closely monitoring the solvency of property and casualty insurers since Hurricane Laura, the first of multiple natural disasters declared in hitting Louisiana since August 2020.
“The combination of Hurricanes Laura, Delta and Zeta in 2020, which cost insurers $10.6 billion; Hurricane Ida, which is expected to cost insurers between $20 billion and $40 billion; and rising labor and material prices due to supply chain disruptions during the pandemic have put several insurers at risk of exhausting reinsurance coverage and running out of cash,” warned the department.
If an insurance company cannot be rehabilitated, the assets would be liquidated in the same way as a private bankruptcy process and LIGA would take on policyholder claims.
“As insolvent businesses do not have sufficient assets to pay claims, guarantee associations make up the difference,” the organization said.
LIGA’s 2020 annual report showed the backstop entity had $147.8 million in net assets and paid $4.8 million in claims last year.
“Net assets represent funds collected from member insurance companies, distributions from liquidators, interest income and other receipts in excess of funds disbursed to pay claims and expenses of the Association,” says The report.