Best’s Special Report: U.S. Life/Health Insurance Impairments Remain Low in 2018; Stabilization Seen Among ACA-Related Entities

Following three years when a significant number of health insurance Consumer Operated and Oriented Plans (co-ops), formed through the Patient Protection and Affordable Care Act (ACA), became impaired, no new ACA-related impairments occurred in 2018, according to a new AM Best special report.

The Best’s Special Report, titled, “2018 U.S. Life/Health Impairments Update,” states that two life/health impairments were identified in 2018: Cuatro LLC, an HMO placed into insolvent liquidation due to significant annual operating losses; and North Carolina Mutual Life Insurance Co., which was placed in rehabilitation due to the inadequacy of the trust assets securing a significant reinsurance transaction. Co-ops accounted for all three insurer impairments in 2017, as well as 18 of the 24 insurer impairments during 2015-2017.

Overall, during the 2000-2018 study period, 162 life/health insurers became impaired. The impairments consisted of 135 insolvent liquidations and 25 rehabilitations—of which 13 were closed during the period and 12 remain open as of this report—and two conservation actions. AM Best defines impairments as being situations in which a company has been placed, via court order, into conservation, rehabilitation or insolvent liquidation. Supervisory actions undertaken by insurance department regulators without court order were not considered impairments for this study unless delays or limitations were placed on policyholder payments.

While there are specific causal factors identified for 53 of the impairments, most fell into the category of general business failure arising out of some combination of poor strategic direction, weak operations, internal controls weaknesses or underpricing and under-reserving the business. However, the significant challenge of operating as a qualified nonprofit health insurer under the ACA was the leading specific cause and was present in 19 of the impairments.

During the 2000-2018 period, 72% of the impairments were accident and health or health insurers, while 15% were small life insurers primarily focused on selling lower policy value industrial/burial or stipulated premium business in the South. The remaining 21 impairments (13%) involved fraternal entities (5), annuity writers (8) and other life or combined life, annuity and health business (8).

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=292463.

AM Best is a global credit rating agency, news publisher and data provider specializing in the insurance industry. The company does business in more than 100 countries. Headquartered in Oldwick, NJ, AM Best has offices in cities around the world, including London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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