There was much movement among insurers in 2023. Many laid off employees, while many diversified their coverage away from California due to increased catastrophe risks and what they viewed as an unfavorable regulatory system.
Some found their way into Florida in the wake of legislation that promised to clean up the regulatory environment. The year was also marked by a wide-ranging scandal at fronting carrier Vesttoo. BestWire examines some of these issues with a look back at the year that was.
Layoffs
The industry saw a wave of layoffs that observers said were the result of lackluster underwriting results as claims costs shot up, hitting personal lines writers hardest. Other factors that contributed to the actions included advancing technology, consolidations, realignments, investor unease, and distribution changes.
Farmers Insurance laid off about 2,400 employees, nearly 11% of its workforce. Geico, a member of third-largest U.S. all-private passenger writer Berkshire Hathaway Insurance Group, laid off about 2,000 employees — 6% of its workforce. Liberty Mutual Insurance eliminated about 850 positions, roughly 2% of its U.S. workforce.
State Farm and USAA layoffs of hundreds each made headlines. Allstate employee expense cuts hit a technology hub. American Family said it was consolidating areas that provide similar functions.
Hippo Holdings Inc., cyber insurtech Cowbell, full-stack commercial insurtech Pie Insurance, and insurtech managing general agent Corvus Insurance all laid off double-digit percentages of their workforces, but the number of employees impacted was smaller than those impacted by the larger insurers due to their size.
Although artificial intelligence has increased productivity for insurers, AM Best released a commentary noting it shouldn’t be considered the main cause of insurer layoffs.
Global insurance risk transfer platform Vesttoo announced layoffs in August, but that was specific to investigations that were launched into questionable letters of credit that had been issued by the fronting carrier.
Vesttoo Turmoil
In July, Vesttoo announced it had initiated an audit of “inconsistencies” in collateral in two transactions for which the company modeled risk, leading to the departure of several members of its management team. After discovering the inconsistencies, Vesttoo brought in a third party to audit its records to ensure its due diligence procedures are robust, it said.
This was followed by additional investigations from Aon, Corinthian Group, and Clear Blue Insurance Group. It was ultimately revealed Vesttoo was alleged to have issued nearly $2.35 billion of invalid letters of credit that were to serve as collateral for White Rock Insurance (SAC) Ltd.
Clear Blue also sued Aon for damages connected to the invalid letters of credit. In an AM Best briefing, Greg Williams, senior director, DUAE, AM Best, said the fronting carrier most exposed by the Vesttoo failure was Clear Blue Insurance Co., but it is encouraging that Clear Blue was able to replace the capacity that was with Vesttoo efficiently and in a short amount of time. Some capacity might be scared off but it is encouraging that there is capacity out there, Williams said.
Vesttoo now faces liquidation under a plan that would allow its creditors to collect up to $2.8 billion, with a vote on the proposal set for Jan. 24.
Liquidations
Other insurers also faced liquidation for various reasons, including as the result of catastrophes. In November, Cameron Mutual Insurance Co. was placed into court-supervised liquidation after it experienced significant losses related to severe convective storms throughout the year that caused a rapid reduction in its policyholder surplus, according to the Missouri Department of Commerce. Cameron Mutual’s surplus dropped from $16.4 million as of March 31 to $3.4 million as of June 30.
Losses driven by storm damage also sent Kansas property/casualty company MutualAid eXchange into liquidation. The company sold primarily homeowners multiperil, farmowners multiperil and personal property coverage, according to a Best’s Financial Report. It showed the company reported net losses of $805,000 in 2022 and $1.5 million in the first quarter of 2023, driven by heavy underwriting losses.
There were other carriers who faced liquidation for non-cat loss-related reasons. R&Q put its reinsurance subsidiary R&Q Re US in liquidation after R&Q reported a $90 million, non-cash pretax charge associated with R&Q Re US, according to its 2021 annual report. The charge was in connection with the early commutation of the reinsurance contract to provide liquidity, it said. Claims against R&Q Re US had grown faster than anticipated, leaving the reinsurer with minimal liquid assets, it said. The alternative to R&Q was pumping $34 million more into the company over the coming two to three years, it said.
In November, Massachusetts Mutual Life Insurance Co. said it will wind down its Haven Life subsidiary, which focuses on direct-to-consumer term life policies written digitally without health exams, amid a lack of consumer demand for the products.
Meanwhile, Florida-based insurtech Benefytt Technologies filed for bankruptcy protection in May, nine months after the Federal Trade Commission socked it with a $100 million fine for lying to consumers about “sham” health insurance plans and using deceptive lead generation websites to lure them in. Benefytt’s estimated assets between $1 billion and $10 billion and estimated liabilities between $500 million and $1 billion, its filing said. It also reported creditors numbering between 1,000 and 5,000.
California & Florida
Bamboo Insurance kicked off 2023 with the launch of its homeowners’ coverage in Arizona in what Bamboo Founder and Chief Executive Officer John Chu described as “an exciting milestone in our expansion outside of California.” As the year went on, other insurers began to diversify their coverage away from the Golden State due to increased catastrophe risks and an antiquated regulatory system.
Liberty Mutual Insurance Cos., the sixth-largest writer of commercial multiperil in California, planned to stop writing new or renewing current business-owners’ policies in California in the fourth quarter. The carrier said it regularly assesses its position in each market, which sometimes “results in a determination that a product is no longer effectively delivering” on the work of meeting customers’ needs and business goals.
Tokio Marine America said it will stop writing new non-automobile personal lines and would exit all personal lines by June 2026. It attributed the decision in large to an inability to support rising technology costs, along with market conditions. It said the move will strengthen its commercial lines segment and enhance support to policyholders and distributors.
James River subsidiary Falls Lake Fire and Casualty Co. exited homeowners in California because it couldn’t get reinsurance, it told the California Department of Insurance, which said the carrier had about 900 policies in force. Berkshire Hathaway subsidiary AmGuard Insurance Co. started sending notices this week for nonrenewals starting in mid-November.
State Farm, Allstate and Farmers — three of California’s top-five homeowners’ insurers — closed or limited access to new policyholders. California Insurance Commissioner Ricardo Lara said he cannot stop homeowners insurers from doing this, but he was confident market capacity would return. At the same time, he filed a petition in Los Angeles Superior Court to have Crusader Insurance Co. placed into conservation because Crusader was in a “hazardous” financial condition, according to a statement from parent company Unico American Corp.
Insurers have argued getting rate in California is complicated because of antiquated laws. In September, California Gov. Gavin Newsom issued an executive order urging Lara to to expand private insurance carrier coverage throughout the state while protecting consumers and keeping rates affordable. Lara then announced new measures he said amount to the “largest insurance reform since state voters’ passage of Proposition 103 nearly 35 years ago. Those measures were supported by insurance trade groups.
The proposals include the use of catastrophe modeling that factors in the effects of climate change as well as mitigation and property-hardening efforts to reduce fire losses. The reforms also call for speeding up the rate review process and for “exploring” a model that considers California-only reinsurance costs. Carriers would only be allowed to use the updated tools if they agree to take on property risks in wildfire-prone areas and lay out clear plans to depopulate the state’s FAIR Plan, the property insurer of last resort.
Legislative reforms brought insurers back to Florida.
Mainsail Insurance Co., Tailrow Insurance Co., Orion180 Select Insurance Co., Orion180 Insurance Co., and Orange Insurance Managers, LLC, were all approved to do business in Florida in 2023 after recent years of company withdrawals and insolvencies. The insurers were drawn to the state following the passage earlier in 2023 of H.B. 837, which limits when Florida’s one-way attorney fee statute may apply; sets uniform standards for juries to assess damages in personal injury or wrongful death cases and modifies the state’s insurance bad faith law, among other things, according to a legislative analysis.
There was the hope the arrival of the new insurers would help alleviate some of the policies from the state’s insurer of last resort, Citizens Property Insurance Corp. In October, Citizens officials adjusted their policy count forecast downward for the rest of 2023 and expected to end 2023 with around 1.3 million policies, fewer than the 1.4 million it has now, said Tim Cerio, Citizens’ chief executive officer, president and executive director. Earlier forecasts were for Citizens to finish 2023 with 1.5 million to 1.7 million policies, he said.
There was some drawdown by insurers in the Sunshine State, though. In addition to California, Farmers decided to discontinue branded homeowners, automobile and umbrella policies distributed by captive agents in Florida. The move was needed to effectively manage risk exposure and applied to 30% of Farmers group business in the state, according to a company spokesman.
This led Florida Chief Financial Officer Jimmy Patronis to call for a market conduct examination of the insurer. Florida Democrats pointed to the drawdown as evidence that state Republicans, who control the legislature and executive’s office, have failed to fix the market crisis.
On the other hand, State Farm said it planned to maintain a “substantial presence” in the state, saying they were “encouraged by the recent insurance reforms and efforts to curb legal system abuse.”
The Argo Saga’s Lucrative Conclusion
While some companies were liquidated, Argo Group International Holding’s Ltd.’s tumultuous few years ended with a $1.1 billion sale to Brookfield Reinsurance Ltd. It all began with an investigation by the U.S. Securities and Exchange Commission into the Bermuda-based insurer’s failure to fully disclose perquisites and benefits provided to Mark E. Watson III, who served as Argo’s Chief Executive Officer from 2000 until his resignation over the charges in 2019. Kevin Rehnberg succeeded Watson as CEO.
Over the course of 2023, Argo sold its Italian specialty insurance operations, exited its noncore businesses, sold the renewal rights of its contract binding property/casualty business, sold its Brazilian operations and reduced its workforce by 20%. Rehnberg went on leave due to health reasons in March 2022, and was ultimately succeeded by Thomas A. Bradley. Argo initiated a strategic review in April 2022. That review was challenged by dissident shareholder Capital Returns Master Ltd., which also put up two candidates for the board. It withdrew those candidates two days before the elections.
In October 2022, Argo was hit with class-action lawsuits that claim stock market price drops in February and August related to company actions injured investors. Argo’s strategic review ultimately ended with the sale to Brookfield.
Continuing Legal Problems for Lindberg
Other issues that date back to the beginning of the decade linger. Insurance executive Greg Lindberg faces charges from 2020 by the SEC, as well as a retrial on charges that he tried to bribe North Carolina Insurance Commissioner Mike Causey. In 2023, he was hit with charges that he he deceived the North Carolina Department of Insurance and other regulators, evaded regulatory requirements meant to protect policyholders and concealed the true financial condition of his insurance companies. Ultimately, he is accused of being the mastermind of a $2 billion fraud scheme to use insurance company proceeds to fund a lavish lifestyle.
The indictment also names Christopher Herwig and Devin Solow as co-conspirators. The two, who served in executive roles at Eli Global, a group of companies controlled by Lindberg, were charged in the Western District.
Other Legal Issues
In February, Insurtech Root Inc. alleged former Chief Marketing Officer Brinson Caleb “BC” Silver and others planned and executed a “brazen and sophisticated scheme” to steal at least $9.4 million from the company. Silver was hired in November 2021 to manage Root’s “modest” marketing plan and budget and was let go a year later as part of a staff reduction, court paper said.
M&A
Pinnacol Assurance kicked off 2023 by acquiring managing general agent and technology-focused broker platform Attune from insurtech Coalition. Pinnacol said the investment in Attune through subsidiary Cake Insure would eventually give it greater options to connect policyholders with insurers that operate in multiple states, which is “especially important in the era of modern economic and workforce trends.”
In May, RenaissanceRe Holdings Ltd. agreed to acquire American International Group Inc.’s treaty reinsurance business, Validus Re, in a $2.99 billion deal. RenaissanceRe President and Chief Executive Officer Kevin O’Donnell said the deal would make RenRe a top five property/casualty reinsurer under financial terms that will “accelerate our three drivers of profit” — underwriting, fee, and investment income.
In August, Automobile Club of Southern California’s affiliated insurer agreed to acquire Wawanesa Mutual Insurance Co.’s U.S. subsidiary, Wawanesa General Insurance Co., and planned to operate it as a separate company with its own management team and employees. Financial terms were not disclosed, but Wawanesa Mutual had more than C$4 billion ($3.02 billion) in annual revenue, assets of nearly C$12 billion and more than 1.6 million members throughout Canada.