Liquidation News

After attempts to reorganize the financially troubled Reliance Insurance Co., the Pennsylvania Insurance Department (PID) has shut it down.

Pennsylvania's Insurance Commissioner Diane Koken says that Reliance faces a deficit of more than $1 billion and losses of between $2 million and $4 million. The insurer will not be able to pay the $10 billion that it and its affiliates owe in every state in the country.

Philadelphia Commonwealth Court Judge James Gardner Colins issued an order Oct. 3, 2001, that stopped legal claims involving Reliance's 75,000 policyholders for the next 90 days. Commissioner Koken says, though, that the PID would try to settle workers compensation and personal injury claims.

Reliance has canceled its remaining policies and given its customers, mostly commercial clients, up to 30 days to find new coverage.

Despite the presence of a financial observer posted by the PID since January 2001, the PID assumed financial control of Reliance Insurance Co. on May 29, 2001. In mid-September, Colins ordered the department to decide by Dec. 4, 2001, whether Reliance could be saved or must be liquidated.

Commissioner Koken said from the outset that it would take the department six months before it could make the decision on whether or not to liquidate the insurer. This ruling formalizes that projection.

Since Reliance turned out to be insolvent, the Pennsylvania guaranty fund will cover any property/casualty, commercial lines, and workers compensation insurance claims that exceed Reliance's assets.

Reliance Group Holdings, parent company of Reliance Insurance Co., filed for bankruptcy protection in June 2001, largely as a result of mounting claims against its insurance subsidiary.

Colins ruled in early August that the Pennsylvania Insurance Department could take over the statutory deposits, totaling about $350 million, held outside of Pennsylvania as a condition of Reliance Insurance doing business in other states.

The largest of the statutory deposits, $213 million in California, will probably still be used to cover claims coming from that state, says Roseanne Placey, a PID spokesperson.

Reliance Insurance Co. stock was removed from the New York Stock Exchange (NYSE) in December 2000 after the NYSE determined that its share price was "abnormally low" and did not meet its criteria for trading on the exchange. The NYSE says Reliance also failed to meet criteria relating to market capitalization, stockholders' equity, and average global market capitalization.

PHILADELPHIA -- State insurance regulators are shutting down Reliance Insurance Co. after abandoning attempts to reorganize the troubled Philadelphia company.

"The financial condition of the company was clearly worse than what we had thought when we took over" in April, state Insurance Commissioner Diane Koken said after getting an court order to liquidate Reliance, which faces a deficit of more than $1 billion and losses of $2 million to $4 million a day.

Reliance will be unable to pay some of the $10 billion that it and its affiliates owe in all 50 states, Koken said.

Judge James Gardner Colins' order issued Wednesday stops legal claims involving Reliance's 75,000 policyholders for the next 90 days. But Koken said the Pennsylvania Insurance Department would attempt to speed settlement of workers' compensation and personal-injury claims.

Reliance has canceled its remaining policies. It has given its remaining customers, which are mostly businesses, up to 30 days to find new coverage.

Commonwealth Court Grants PA Insurance Department Petition Seeking Liquidation of Reliance Insurance Company

HARRISBURG, Pa., Oct. 3 /PRNewswire/ -- Pennsylvania Insurance Commissioner M. Diane Koken today announced that the Insurance Department petitioned Commonwealth Court to approve an Order of Liquidation for Reliance Insurance Company. The Commonwealth Court granted the Petition for Liquidation this afternoon.

``After extensive and diligent effort, we have determined that there is no alternative to the liquidation of Reliance Insurance Company,'' Commissioner Koken said. ``The financial difficulties of Reliance are worse then we knew on May 29, when we obtained an Order of Rehabilitation. Further attempts to rehabilitate Reliance would be futile and would substantially increase the risk of loss to Reliance policyholders, claimants and creditors.

``These conclusions are supported by the company's recently completed first quarter 2001 financial statements that show a substantially increased negative surplus.

``The ongoing shortfall of cash receipts -- especially those of reinsurance -- needed to pay policyholder claims and administrative expenses has been exacerbated significantly by the terrorist attack on the World Trade Center. Recent output from the financial model shows that Reliance will be unable to pay policyholder claims as early as the fourth quarter of 2001.

``Our responsibility now is to take the necessary steps to orderly liquidate the company. The court's liquidation order triggers the state guaranty associations to pay policyholder claims to the maximum levels allowed by law.''

A statement from Commissioner Koken regarding today's action by the Insurance Department is available on the Insurance website at www.insurance.state.pa.us.

A Pennsylvania domiciled company, Reliance Insurance Company was licensed to write business in all 50 states, although it stopped writing most new or renewal business in June 2000. The states with the largest number of policyholders include California, New York, Florida, Pennsylvania, Illinois and Texas. Reliance Insurance Company's insurance business consisted primarily of workers' compensation, commercial auto, commercial liability and personal auto coverage. The Pennsylvania Insurance Department took statutory control of the company on May 29, under an Order of Rehabilitation.

This Order of Liquidation applies to all the former subsidiaries that were merged into Reliance Insurance Company, including Reliance National Indemnity Company, Reliance National Insurance Company, United Pacific Insurance Company, Reliance Direct Company, Reliance Surety Company, Reliance Universal Insurance Company, United Pacific Insurance Company of New York, and Reliance Insurance Company of Illinois.

CONTACT: Rosanne Placey or Melissa Fox of the Pennsylvania Insurance Department, +1-717-787-3289.

Reliance Insurance will be unable to pay some of its $10 billion in liabilities, state Insurance Commissioner Diane Koken said.

The Pennsylvania Insurance Department has abandoned its attempt to reorganize Reliance Insurance Co., and is shutting the Philadelphia insurer, which faces a deficit of more than $1 billion and losses of $2 million to $4 million a day.

Reliance will be unable to pay some of the $10 billion in claims, debts and other liabilities owed by the insurer and its affiliates in all 50 states, state Insurance Commissioner Diane Koken said.

The state's most recent estimate of the deficit is $1.05 billion; that number is expected to rise.

"You and I are going to be paying this," said Homer Rhule, head of the Pennsylvania Property and Casualty Insurance Guaranty Association.

Part of the deficit will be paid by Rhule's fund and 50 other U.S. property and workers' compensation guaranty funds. These funds bail out failed insurers from money collected with fees imposed on solvent insurance companies - which typically pass the expense along to homeowners, drivers, employers, and other policyholders by raising premiums.

Rhule's fund is already imposing its legal maximum 2 percent surcharge on Pennsylvania insurers because of previous failures.

To cover the rest of its deficit, Reliance will likely be forced to renege on some debts to its contractors, and to cancel some of its contracts to provide reinsurance for other insurers.

"The financial condition of the company was clearly worse than what we had thought when we took over" in April, Koken said yesterday after securing an order to liquidate Reliance from Common Pleas Court Judge James Gardner Colins in Philadelphia.

Colins' order stops legal claims involving Reliance's 75,000 policyholders for the next 90 days. But Koken said the state would attempt to speed settlement of workers' compensation and personal-injury claims.

Reliance canceled its remaining policies, giving its remaining customers - mostly businesses - up to 30 days to find new coverage.

Koken thanked the company's 250 remaining Philadelphia workers and the lawyers she has contracted to run the company, and asked for their help in liquidating its assets.

The company's financial failure comes as U.S. property insurers are bracing for at least $20 billion in losses from the destruction of the World Trade Center, which is expected to increase insurance premiums for homes, businesses and other property.

Koken said the World Trade Center attack had crippled operations at big reinsurance companies, which Reliance had counted on to help pay its claims. That, plus court reversals in her attempts to seize Reliance funds in other states, speeded Koken's decision to liquidate Reliance.

Pennsylvania took over Reliance in April as Saul P. Steinberg, an investor from New York, relinquished control of the company, whose dividends and executive-pay packages had funded his career as a multimillionaire stock speculator, arts patron, and Wharton School benefactor since he bought Reliance in 1968.

Former Steinberg aides blame the company's financial collapse on the crushing debt load that Steinberg imposed on Reliance, along with the failure of his aggressive attempts to build up the company in the 1990s by offering high-risk insurance policies at bargain prices.

Starting in 1998, the company reported massive losses in workers' compensation, environmental and construction policies and business arrangements.

After Koken's department cut Reliance's dividends to try to stanch the losses, Steinberg's holding company, Reliance Group Holdings Inc., defaulted on its bonds and bank debt and was delisted by the New York Stock Exchange last year.

But Reliance Insurance continued to bleed money. In April, Reliance estimated its deficit through Dec. 31, 2000, at $220 million, according to court papers made public yesterday.

But by August, state analysts had boosted that figure by half a billion dollars as new claims came in and Reliance investments in such companies as Symbol Technologies Inc. declined, according to the documents.

On Sept. 28, Koken said, a new analysis by the accounting firm Ernst & Young showed that the deficit had grown to $1.05 billion by March 31, 2001. Expenses since then have risen, while income from reinsurers that help Reliance pay its claims has fallen sharply.

Reliance's troubles have renewed calls - by Maurice Greenberg, chairman of American International Group, among others - for replacement of the current network of state insurance regulation by a national regulator.

But Koken said the Insurance Department had responded appropriately to Reliance's problems and remained "up to the challenge."