Jim Donelon

Louisiana Insurance Commissioner Jim Donelon

(The Center Square) – Louisiana Insurance Commissioner Jim Donelon has forced two “financially troubled” homeowners insurance companies into receivership over unpaid policyholder claims stemming from Hurricane Ida.

Donelon said the private companies are being rehabilitated, however, not dissolved.

“Court-appointed receivers are now in charge of operating each company,” a statement from the Louisiana Department of Insurance said. "Both companies are in rehabilitation, a type of receivership aimed at solving problems at the company.”

The move is a step toward ensuring “most policyholders with pending claims will get paid,” the statement said.

The Louisiana Insurance Guarantee Association (LIGA), a nonprofit safety net entity, will pay the claims after assets are liquidated from the State National Fire Insurance Company of Baton Rouge and Access Home Insurance Company of New Orleans, if they ultimately prove insolvent.

Rehabilitation is a process aimed at returning financially distressed companies to solvency, according to LIGA.

“Often, companies placed in rehabilitation may subsequently be placed in liquidation,” the entity’s website said.

When asked whether taxpayer money will be involved in covering the two companies’ losses, LIGA executive director John Wells said in an email: “LIGA and its insolvency remediation program are funded by fees assessed to Louisiana licensed insurers and the funds recovered from insolvent companies. The insurers receive tax credits that are applied over a ten year period.”

LIGA was created by the Louisiana Legislature in 1970 to protect state insurance consumers. If a member insurance carrier cannot pay its policyholders’ claims, LIGA can access up to 1% of all member companies’ annual funds to pay a failing member’s financial obligations.

The organization will cover up to $500,000 per occurrence and a limit of $10,000 for unearned premiums, according to its website.

Donelon filed injunctions last week against the two regional insurance companies in the 19th Judicial District Court in Baton Rouge.

A spokesperson for the Department of Insurance said it’s too early to know how many policyholders have outstanding claims that the companies cannot pay or the total dollar amount of those claims.

A department statement said State National Fire has about 9,000 total policies, or 0.14% of the Louisiana homeowners insurance market, and $2,945,198 in direct written premiums. Access Home has about 19,697 policies, or 0.86% of the homeowners insurance market, and $17,684,440 in direct written premiums.

A review of the department’s insurance industry database shows State National Fire has $7 million in assets and Access Home has $31.5 million in assets. State National Fire also lists less than $300,000 in net income, while Access Home shows a negative income of $3.5 million.

Donelon said insurance company failures are “relatively rare,” and added that state insurance officials have been monitoring closely the solvency of property and casualty insurers since Hurricane Laura, the first of multiple declared natural disasters to hit Louisiana since August 2020.

“The combination of hurricanes Laura, Delta and Zeta in 2020, which cost insurers $10.6 billion; Hurricane Ida, which is projected to cost insurers between $20 billion and $40 billion; and increasing labor and materials prices because of supply chain disruptions during the pandemic have put several insurers in danger of exhausting their reinsurance coverage and running out of money,” the department warned.

If an insurance company cannot be rehabilitated, assets would be liquidated similar to a private bankruptcy process and LIGA would take over policyholder claims.

“Since insolvent companies do not have adequate assets to pay claims, guaranty associations make up the difference,” the organization said.

LIGA’s 2020 annual report showed the safety net entity had $147.8 million in net assets, and paid $4.8 million in claims last year.

“Net assets represent funds collected from member insurance companies, distributions from liquidators, interest income, and other receipts in excess of funds disbursed to pay claims and expenses of the Association,” the report said.

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