Principles of Risk Management and Insurance, 13th Edition

Insolvency of Insurers

Insolvency of insurers is another important regulatory problem. According to the National Conference of Insurance Guaranty Funds, more than 550 property and casualty insurers have become insolvent since the guaranty fund system was established in 1968.⁸ Fewer insurers have failed in recent years because of conservative financial management. According to A.M. Best, there were only 14 known impairments in 2013 compared to 25 in 2012.⁹

Reasons for Insolvencies

Insurers fail for a variety of reasons. Major causes of failure include inadequate reserves for claims, inadequate rates, rapid growth and inadequate surplus, mismanagement and fraud, bad investments, ­problems with affiliates, overstatement of assets, catastrophe losses, ...