Reliance Running Out of Cash
By Robert Warne - February 24, 2004When Reliance Insurance went under in 2001 it set off a concentric financial ripple effect that has continued to build to the point that many of its claimants may end up taking a bath when the carrier’s expenses eventually exceeds its assets.
The reason why it appears things could get out of hand is because originally it was estimated that 75,000 claims would be filed before a December deadline instead of the 144,000 that were filed, according to the Philadelphia Inquirer.
And not leaving the Pennsylvania Department of Insurance much to work with, its $5.9 billion in assets, two-thirds of which are potentially unrecoverable re-insurance receivables, will soon be eclipsed by an estimated $9 billion in claims related costs.
The Inquirer reported that it costs approximately $10 million a month to keep Reliance’s runoff flowing. Nearly half of the cost is attributed to Reliance’s remaining 432 employees. Aside from $1 million in rent, the rest goes to computer companies, lawyers and contractors.
Because of state guarantee funds, workers’ compensation and auto claims should all be covered regardless of any financial shortfalls.
Pennsylvania lawmakers have been working on legislation that would determine who would get the short end of the stick with whatever money is left over.
As it stands right now, Reliance’s corporate and nonprofit customers with large pending claims are staring at the possibility of only getting 50 cents for every claim dollar they are owed, while its corporate customers that bought complex commercial policies are expected to fare much better.
Federal lawsuits against Reliance Chairman Saul E. Steinberg for allegedly looting the company and deceiving regulators and policyholders are pending.
Reliance continues to hold the dubious distinction of being the nations largest insurance failure to date.
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