Underpricing and under-reserving by well-meaning new players in the medical malpractice insurance marketplace often ends in financial disaster for the company, its policyholders and claimants. It is politically popular for regulators to play to those wanting to keep premiums down and to encourage self-insurers, physician-owned mutuals, reciprocals and risk retention groups. To often, those groups face an inherent conflict of interest between their mandate to "make affordable coverage available" and their obligation to obtain enough premium to cover all claims and contingencies.
That conflict becomes most acute during "crises" in which commercial insurers withdraw from markets that have become losing propositions for any financially responsible provider. It is economically vital that those that regulate insurance providers and the insurance coverages of health care providers also enforce the less popular legal requirements forbidding premiums that are "inadequate," to avoid melt-downs like MIIX Insurance, presently operating in "solvent runoff". N.J.'s Med-Mal Writer MIIX Continues in Runoff Without Guaranty Fund (Insurance Journal, July 21, 2005). The regulatory euphemism "solvent" runoff is ironic, considering that less than a year ago, MIIX had a negative surplus of some $300 million.
The story of MIIX Insurance could be added to a list of case studies in dysfunctional insurance management and regulation, joining the list with Reciprocal of America and many others.
Other online resources providing a timeline of the decline and fall of MIIX Insurance:
MIIX Group Reports Fourth Quarter Results, Announces Quarterly Dividend and Sets Record Date for 2001 Annual Meeting Investor's News at MIIX.com Website (2/22/01), in which management stated:
"Our written premium declined over $30 million in 2000 and we expect further reduction in 2001 as a result of our ongoing re-underwriting and re-pricing efforts. During 2000, we aggressively sought to eliminate unprofitable business and we will continue to focus on retaining and intelligently growing our business prudently and where opportunities exist. We believe that this bottom line focus will result in greater long term profitability, particularly in the current very hostile market climate."
"Our book value at December 31, 2000 exceeded $21 per share and we believe that the current trading range represents a significant opportunity for long term investors. We believe that reserve adequacy, debt leverage and management are key considerations when looking at MIIX as an investment. Our reserves continue to be carried at Company best estimate levels and at year end our gross loss reserves approximated $1.142 billion, of which incurred but not reported (IBNR) reserves represented $690 million, or 60.3% of the total, up from 58.1% at September 30, 2000 and 57.6% at June 30, 2000. Debt leverage at the Holding Company level approximated 2% and is not expected to increase in the near future. Lastly, the new MIIX management team has demonstrated its commitment to take the appropriate, often difficult actions to ensure the Company's long-term success."
MIIX Group Reports Third Quarter Results (reporting book value of over $23.00 per share) Investor's News at MIIX.com Website (11/1/01).
MIIX Announces Decision of Chief Financial Officer to Leave in March 2002 Investor's New, MIIX.com Website (12/21/01).
MIIX Group Reports Fourth Quarter Results Investors News, MIIX.com Website (Reporting reserve increases, $12/share net operating loss and book value below $10 per share) (2/28/02)
MIIX Group Reports Fourth Quarter Results Investor's News, MIIX.com Website (2/26/03). This year-end report blamed the sudden downturn on the necessity of increasing reserves for past policy years:
"For the twelve months ended December 31, 2002, the Company incurred a net operating loss of $107.5 million, or $8.03 per share, compared with a net operating loss of $149.6 million, or $11.06 per share, during the twelve months ended December 31, 2001."
"The Company's losses in 2002 are reflective of the turbulent legal and medical economic environments in the states where the Company wrote the majority of its business," stated Chairman and CEO Patricia A. Costante. "Results reflect fourth quarter gross reserve adjustments of $85.1 million, which are directly attributable to the continuing upward trend of loss severities to unprecedented levels. The reserve adjustments associated with the New Jersey physician market primarily relate to accident years prior to 1999 when the Company undertook an effort to restructure its New Jersey program. The continuing rise in loss severities in the fourth quarter to historically high levels follows loss and ALAE reserve adjustments made by the Company in the first quarter of $35.6 million and in the third quarter of $30.7 million."
The MIIX Group Announces Court Places Insurance Subsidiary in Rehabilitation. Investor's News at MIIX.com Website (9/30/04)
The MIIX Group announces bankruptcy filing. Investor's News at MIIX.com Website (12/20/04)
There's a graduate level case study in here somewhere.
Posted by dougsimpson at July 23, 2005 05:17 AM