HARRISBURG, MARCH 13, 2007: The Senate Banking and Insurance Committee unanimously approved legislation that would give the Pennsylvania Insurance Department more time to identify a problem and work with a company to prevent insolvency, according to state Sen. Mike Stack, the bill’s sponsor.

“From 1999 to 2003, there were a number of property and casualty insurance company insolvencies. Many times the insurance departments and companies learned about the financial problems when it was too late to take corrective measures. This bill aims to help companies stave off fiscal obstacles,” said Stack, who is the Democratic chairman of the Banking and Insurance committee. “I’m pleased that the bill has the committee’s unanimous approval to move to the Senate floor for debate.”

Senate Bill 222 amends Pennsylvania’s Risk Based Capital (RBC) statute, to add a trend test component to the definition of “company action level event” for property and casualty insurers.
The test is a mathematical formula used to provide earlier determination of when a company is approaching a company action level event.

Currently, a company action level event is only triggered if the RBC ratio is 200 percent or less.
The trend test was developed by the National Association of Insurance Commissioners in response to the high number of property and casualty insurer bankruptcies between 1999-2003. One of the largest insolvencies during this time period was Philadelphia based Reliance Insurance.

A study of these insolvencies showed that few insurers triggered an RBC action level event before insolvency became unavoidable.

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