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Reliance Insurance Co.’s $2 billion debt, combined with Pennsylvania state regulators’ decision to take control of the company Tuesday, May 29, have set the stage for the largest bailout ever by state funds. Early estimates by the Pennsylvania Property and Casualty Insurance Guaranty Association put Reliance losses in the state alone at $350 million. That’s $50 million more than Pennsylvania lost from the largest US property and casualty failure of the ’90s—the liquidation of Physicians Insurance Co.

"I took the step of asking the Commonwealth Court to put Reliance Insurance Co. into rehabilitation in order to protect the policyholders, as the company has been unable to restore itself to sound financial condition," said Pennsylvania Insurance Commissioner M. Diane Koken.

In 1997, risk-based capital requirements were enacted in Pennsylvania as a tool to monitor the solvency of a company. In March 2000 when Reliance reported its ’99 financial statement, certain requirements could not be met, prompting an increase in regulatory supervision. To put its capital deterioration into context, a year earlier Reliance’s ’98 financial statement reflected the highest surplus in the company’s history, an estimated $1.7 billion.

During 2000 Reliance Group Holdings, Inc. was delisted by the New York Stock Exchange and defaulted on more than $500 million in bonds and bank debt. Subsidiaries that wrote business in all 50 states have been plagued by Reliance’s condition. Close to home, Sable Insurance Co. became a Reliance casualty May 10 when it was conserved by the California Department of Conservation and Liquidation (see "Sable Not Up to the Task of Survivability").

"To ensure the rehabilitation proceeds as effectively as possible," Koken said regarding the rehabilitation process, "I have retained a team of experienced consultants to assist the department in this rehabilitation. They are on the site at Reliance at this very hour—assuming control of the company’s operations, and already beginning our intensive review of the company’s finances.

"In the coming weeks and months, we will use that review to develop the factual information we need to make a reasoned determination of whether to proceed with rehabilitation, or to move to liquidation."