AM Best has recently downgraded 32 P&C carriers in the first half of 2023, and as a result, now is a good time to revisit SwissRe’s policy language and agency best practices. Should you have any questions, please don’t hesitate to contact IIAW staff.  

SwissRe’s policy language as it pertains to carrier downgrades, insolvency, and the exclusions within the policy: 

Section V. EXCLUSIONS, E. INSOLVENCY is deleted and replaced with the following: 

E. INSOLVENCY. The financial inability to pay, insolvency, receivership, bankruptcy or liquidation of any insurance company, any Individual Practice Association, Health Maintenance Organization, Preferred Provider Organization, Dental Service Plan, Risk Retention Group, Risk Provider Group, self-insured plan or any pool, syndicate, association, or other combination formed for the purpose of providing insurance or reinsurance, or any healthcare provider or any reinsurer with which the INSURED directly placed the subject risk. 

However, this exclusion does not apply if, at the time the INSURED placed the subject risk with any of the above-described entities, such entity or entities were rated by AM Best as B or higher, or alternatively, such entities were member insurers of the state guaranty fund, guaranty association or the Wisconsin Insurance Security Fund in the state or states of domicile of the subject risk, or such entities were guaranteed by a governmental body or bodies and/or operated by a governmental body or bodies, the INSURED placed the coverage with an insurance carrier through a state established residual market insurance program, or the INSURED placed the coverage with a County Mutual or Town Mutual reinsured by carriers rated B or higher, or the coverage was placed with an insurance carrier admitted in the state or states of domicile of the subject risk and rated A or higher by Demotech. 

Guidance as it pertains to carrier downgrades: When an insurer is downgraded below a B, the policy language states, “or alternatively, such entities were member insurers of the state guaranty fund, guaranty association or the Wisconsin Insurance Security Fund in the state or states of domicile of the subject risk” would make this exclusion no longer apply.   For example, Badger Mutual is covered by the Wisconsin Insurance Security Fund. As a result, agencies can continue to represent Badger Mutual and renew and place business with Badger Mutual so long as they follow the procedures as outlined below. 

Best practices for agency procedures when continuing business with a carrier with a rating below a B: so long as the state guaranty association covers the carrier, the insolvency exclusion will not apply. 

Agencies should notify ALL affected policyholders of the rating change in writing and electronically.  Suppose an agency intends to place new business with a carrier that has been downgraded (such as Badger Mutual). In that case, they should also inform these customers of Badger's rating in writing, what it means, what their options are, and have the customer sign off that they still want their business placed with them despite the low carrier rating. 

 To help with this, SwissRe has prepared the attached letter for agencies to use. While you are not required to use the letter, we recommend doing so to cover necessary communications with your clients.  

There is no right or wrong decision regarding moving coverage, however, the agency SHOULD NOT make that decision for any of their customers.  Inform the customers and let them decide what they wish to do.  Every E&O claim involving carrier insolvency starts with what the agency knew, when it knew it, and when did it informed its customers. SwissRe’s ability to defend these claims depends on how the client answers these questions, your agency’s ability to follow these procedures for all clients that are impacted and the agency’s thorough documentation in the file.  

Click Here for a Sample Carrier Ratings Downgrade Letter 

Guidance as it pertains to carrier Receiverships and Rehabilitations

First and foremost, the agency must keep its clients informed of the situation. In most cases, the carrier will communicate with their policyholders regarding the situation. The agency can provide additional guidance on the client's options at this time, based on the regulatory action taken by the Office of the Commissioner of Insurance. The agency should NOT notify clients if the carrier has not been placed under an order by OCI. A general rule of thumb would be: if the carrier is not sending client notification, the agency likely does not need to either.  If a carrier is notifying clients of carrier receivership or rehabilitation and the agency does not contact the policyholder/client, a situation could arise where the policyholder/client is not clear on what they need to do. Subsequently, a claim by the policyholder/client could be made that is not covered by the client's policy with the rehab/receiver/liquidated carrier. All of which could lead to an E&O claim against an agency. It is recommended that you try and communicate both electronically and by USPS.

The recommended course of action for agencies to consider:

Finally, your agency’s communication should be clear and concise, and advise the policyholder/client to contact your office immediately to discuss potential options. The agency must inform their policyholders/clients of the situation, what impact it has on their coverage, and what their coverage options are moving forward, and let them decide what they wish to do. Most policyholders are confused as to what to do and what this means for their insurance coverage. While stressful for your agency’s employees, these essential steps will help your agency guard against E&O claims that might arise against your agency from policyholders/clients of carriers in receivership/rehabilitation. 

Click here to download a sample letter for carrier placed in receivership or rehabilitation by OCI.