Rhode Island insurer Pawtucket Mutual Insurance Co., and its subsidiary Narragansett Bay Insurance Co., which are under state control but still solvent, is canceling in midterm all remaining policies, a decision forced by the high cost of reinsurance.
According to Director of Business Regulation Marilyn Shannon McConaghy, who is the court-appointed rehabilitator for the insurer, the companies’ reinsurance expires on July 1 and renewal was “cost prohibitive” and the terms available inadequate.
McConaghy sought and received court approval to cancel the estimated 7,500 homeowners and auto policies with expiration dates after August 5, 2004, arguing that it was best for the policyholders and the guaranty funds to have them replaced by more financially secure carriers.
She also said that given the lack of reinsurance, the risk of insolvency would “greatly increase” if the policies remained in effect.
Despite this latest setback, Rhode Island officials have not yet given up hope of finding a buyer. McConaghy had hoped to close a deal by the end of June but nothing has yet been finalized. McConaghy said there remain two parties interested in purchasing the remaining infrastructure and licenses and gaining access to the experienced agency force and employees.
“This remains an economic development opportunity,” McConaghy said recently, citing the benefits to the state of keeping jobs and attracting another provider into the insurance marketplace.
She maintains there are no “downsides” to the state continuing to seek a buyer as long as the insurer can be run-off without reaching into the state’s guaranty fund or assessing other insurers.
Pawtucket Mutual is domiciled in Rhode Island and writes in 12 states, mostly in the Northeast. It has an independent agency force of about 300 writing its largely personal lines book of business. Since the rehabilitation was ordered in May 2003, the company has stopped writing business.
The companies’ problems stemmed not only from capital depletion and lowered investment income but also from weather-related losses. The court has already approved a plan to convert Pawtucket to a stock company to facilitate a sale if necessary
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