trending Market Intelligence /marketintelligence/en/news-insights/trending/r5tx8afcwq4o3fs7mapkxw2 content esgSubNav
In This List

Rare 'inadequate' reserve actuarial opinions not so uncommon in 1 P&C niche

Blog

The Big Picture 2022 Insurance Industry Outlook

Podcast

Next in Tech | Episode 37: Insurance impacts on technology and vice versa

Case Study

A Prestigious Global Business School Gains a Competitive Edge

Video

S&P Capital IQ Pro | Unrivaled Sector Coverage


Rare 'inadequate' reserve actuarial opinions not so uncommon in 1 P&C niche

It is highly unusual for statements of actuarial opinion to conclude that a property and casualty insurer maintains inadequate reserves, but 2017 marked the fourth consecutive year in which one New York commercial livery insurer's consulting actuary expressed such a view.

Actuaries are asked to select whether they have an opinion on the reasonableness of a P&C insurer's reserve position, and if so, they are given the option to state whether those reserves are reasonable, excessive/redundant, or inadequate/deficient. They also may opt to provide a qualified opinion.

Of the nearly 2,300 opinions given, according to as-reported 2017 data obtained in electronic form through March 15, nearly all of them found the individual P&C entities' reserve positions to be reasonable. Long Island City, N.Y.-based Maya Assurance Co. was the only company for which a hard copy of the 2017 statement of actuarial opinion is available as of this article's time of publication to be labeled as having inadequate reserves. Only five companies, three of which are subsidiaries of BrickStreet Mutual Insurance Co., were found to have excessive/redundant reserve positions.

Consulting actuary Allen Rosenbach of ACR Solutions Group found in his statement of actuarial opinion that Maya "carries significantly less reserves than ... required." He later quantified the purported shortfall of the insurer's net reserve position at $4.5 million below his low estimate. In 2016, Rosenbach initially opined that the company's carried reserves were $3.4 million below his low estimate; an amended filing revised that alleged shortfall to $2.5 million. In each of the cases, he opined that the company's reserves made "an unreasonable provision" for its loss and loss adjustment expense, or LAE, obligations. Another independent actuary found the company's reserves to be understated in both 2014 and 2015.

Neither Rosenbach nor Maya returned messages seeking comment. The company maintained surplus of $3 million as of Dec. 31, 2017, with its reported reserve position, and its authorized control level risk-based capital ratio fell to the company action level at 150.9% from 220.1% year over year.

Maya previously submitted a risk-based capital plan to the New York Department of Financial Services based on its 2015 results. Its audited financial statement for 2016 indicated that management "respectfully disagrees" with Rosenbach's opinion and that it "remains confident that their best estimate is reasonable." Additionally, the company argued that other companies in the "TLC industry," in an apparent reference to the New York City Taxi & Limousine Commission, "did not record to the central estimate."

The New York regulator did not return a message seeking comment.

Certain of its peer companies in the New York metropolitan area have been among the few P&C carriers to receive opinions of inadequate or deficient reserves from their consulting actuaries in recent years, including commercial auto writer Park Insurance Co. and commercial auto and livery insurer American Transit Insurance Co.

While Park's chief actuary opined that the company's reserves were reasonable at the end of both 2016 and 2017, the company's independent auditor reported that the company's unpaid losses and LAE were "less than the minimum the Company's independent outside actuary would consider to be a reasonable estimate."

When Maria Vullo, superintendent of the New York Department of Financial Services, petitioned a court in October 2017 to place Park into liquidation, she based her position in part on alleged accounting irregularities and what she later described as a "long history of drastically under-reporting its required loss reserves." The regulator has argued that Park is insolvent were its reserves to be adjusted to reflect the midpoint of the range indicated in the work of inside and outside actuaries.

Park has vigorously contested the petition and Vullo's allegations, arguing that an investor is "waiting in the wings" to infuse capital and that its 2017 surplus increased to more than $4 million from less than $2.7 million.

The independent actuary for Brooklyn, N.Y.-based American Transit, meanwhile, opined in 2014 and 2015 that the company's unpaid loss and LAE reserves were understated by approximately $37 million and $21 million, respectively, according to the notes to its audited financial statement for 2015. Its independent auditor reported that the insurer had "rejected reports from an outside independent actuary" for those years and that it was unable to perform sufficient auditing procedures to satisfy itself as to the company's reserve adequacy. Statements of actuarial opinion and audited financial statements for American Transit are unavailable for both 2016 and 2017.

American Transit ranks as New York's largest commercial auto insurer, a comfortable distance ahead of national carriers Progressive Corp., Travelers Cos. Inc. and Chubb Ltd. Like Maya and Park, it ended 2017 with authorized control level risk-based capital ratios at the company action level.