In "The Sun Also Rises" by Earnest Hemingway, one person asks the other, "How did you go bankrupt?" Bill asked. "Two ways," Mike said. "Gradually, then suddenly."
Carriers go broke slowly, so slowly that sometimes agents and carrier executives may fail to see the decline. Then suddenly -- but it's always obvious to those looking and not in denial. In the last two weeks (relative to the date of the original draft of this article), two minor P&C carriers were taken over by state insurance departments, one in California and one in Florida. I have not seen two fail in two weeks in decades. A.M. Best provided this time-line for one of them:
10-5-10 (Yes, almost 12 years ago the gradual began) Best revised their outlook to negative.
9-30-11 Best downgraded the company.
4-10-13 Best downgraded the company again.
3-22-16 Best downgraded the company a third time.
7-10-20 Best withdrew its ratings.
7-1-21 The California DOI was named the conservator.
Agents have a tendency to think they will see insolvency coming, but agents still placed $38 million of premiums with the company last year and $55 million the prior year.
These long downward slides are not uncommon. The ultimate outcome is uncommon because most of the time, in this time of easy money, carriers sell more stock or use financial engineering or sell themselves in part or in whole. But to an agent or broker, what good does it do to represent a dying company?
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