PACICC Study Examines Failure of Reliance Insurance Company

The Property and Casualty Insurance Compensation Corporation (PACICC) has released the latest study in its ongoing Why Insurers Fail research series ‒ “Lessons learned from the failure of Reliance Insurance Company.” The study, authored by Vice President, Operations Ian Campbell, examines the 2001 insolvency of Reliance Insurance Company in the U.S., as well as the implications this had for its Canadian Branch. The study found that a radical change in the company’s risk appetite following a corporate takeover, including significant expansion across multiple new product lines and 50 countries, led to the largest insurance company insolvency in U.S. history, with costs totaling over $4 billion. It also prompted the first-ever liquidation of a solvent P&C Canadian Branch, requiring PACICC to take a precedent-setting and “novel approach” to successfully resolve the domestic insolvency. Says the author, “The goal of our Why Insurers Fail research series is to present interesting stories that captivate readers, summarize key causes of a notable insolvency and provide important lessons learned for industry stakeholders. The story of Reliance is very interesting indeed, but also quite tragic. One positive is the fact that corrective actions taken in Canada resulted in a much better outcome for policyholders here, compared to those in the U.S.” Says Alister Campbell, PACICC President and CEO, “The release of this study is very timely. Our Priority Issue this year is to explore options to expand PACICC’s resolution ‘toolkit’ to deal with troubled insurers ‒ including possible early intervention measures prior to insolvency and liquidation. PACICC’s successful, non-traditional approach to address the Reliance insolvency serves to illustrate the ways that creative resolution alternatives can yield better outcomes for consumers and the industry as a whole.” And, he adds, “Ian has told this important story really well…I think many people will find it simply unputdownable!” Copies of all Why Insurers Fail studies are available on the PACICC website (pacicc.ca). Printed copies of the reports are available upon request.