Defense Base Act Compensation Blog

The Modern Day DBA Casualty

AIG/Chartis stops writing excess workers’ comp

Posted by defensebaseactcomp on March 28, 2012

It had previously been predicted elsewhere that the DBA Insurance Companies would begin to crash as they lost the huge premiums they were taking in for Contractors working in the War Zones.

Take the money and run

Best Week Press Release

Big changes lie ahead for the excess workers’ compensation line, as the third-largest writer leaves the stand-alone market in the wake of rising medical costs and the possible impact of the Affordable Care Act, according to the latest issue of BestWeek U.S./Canada. Chartis said in February it stopped writing the business on a stand-alone basis.

“Workers’ compensation is in a very different place today than where it was 10 years ago,” said Russ Johnston, who runs U.S. and Canada casualty operations for Chartis.

AIG said one reason it was leaving the stand-alone business was the Affordable Care Act. AIG “concluded that there is increased vulnerability to the risk of further cost-shifting to the excess workers’ compensation class of business in particular,” the company said in a regulatory filing.

Under the ACA, some 33 million people will gain health insurance coverage at a net cost of $1.1 trillion. That increase in the insured population will result in an increased demand for doctors, resulting in a shortage of primary care doctors and some cost shifting, said Don Hurter, senior vice president of Chartis’ medical management services

What is Excess Workers’ Comp Insurance

Workers’ Comp Executive  Analyst says AIG Workers Comp Reserves are short (2010)

Shares in American International Group (NYSE: AIG) were taking a hit on Wall Street after a prominent analyst warned that three of its long-tail lines of coverage were significantly under reserved. The warning was issued by analysts at Bernstein Research who said the bulk of the reserve deficit is with its general liability and professional liability lines of coverage, but workers’ comp accounted for $1.8 billion of the total, according to published accounts of the research report.

Overall, the three lines amounted to an estimated $10 billion shortfall, while another $1 billion is spread across other lines. AIG spokesman Mark Herr says AIG is “not commenting” on the report and contacts at Bernstein Research were not available to elaborate on their findings.

Those findings could spell trouble for taxpayers who are on the hook for approximately $180 billion in financial aid to the troubled carrier. Taxpayers own 80% of the company and the value of their investment tumbled in trading on Monday in the wake of the report. Shares were off over 14% in late-afternoon trading to $28.52 a share.

While the report is troubling, the company had been showing signs of improvement. AIG and its Chartis general insurance unit recently closed the third quarter with $455 million in net income — the second quarter in a row in which it posted a profit. AIG had adjusted net income of $1.9 billion in the quarter compared to a $9.2 billion adjusted net loss last year. For its Chartis unit, which covers its workers’ comp operations, the company reported net operating income of $722 million. This is up from $105 million in the same period last year and was helped by $612 million in net investment income.

Premiums, however, were down for the unit. AIG says Chartis’ net written premiums amounted to $8.1 billion in the quarter – a 13% decline from the prior year period. AIG said the drop-off was due in part to a decision to hold the line on prices for its workers’ comp business, which accounts for 14% of its gross written premiums.

In California, AIG had nearly $576 million in written premiums in 2008 or 7.5% of the market. AIG companies filed for rate increases of 10% and 7% during the January 1 and July 1 filing periods last year. It hasn’t filed its 2010 rates. Companies in the AIG group filed for an 8% increase for its 2010 rates.

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