Summary of Reinsurance Activities and Rating Actions Tied to Selected Insurers Involved in the Failed 'Unicover' Venture

GAO-01-977R: Published: Aug 24, 2001. Publicly Released: Sep 26, 2001.

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Davi M. Dagostino
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Workers' compensation "occupational accident" policies were brought to the reinsurance market by Unicover Managers, Inc., a reinsurance pool manager and intermediary. Reinsurance is the acceptance by one insurance company of a portion of the risk or claims loss underwritten by another insurance company for a share of the premium to support that risk. In a reinsurance pool arrangement, several reinsurers combine their capital and delegate underwriting authority to a pool manager that is normally not exposed to risk from the reinsurance. Losses from the failed Unicover venture came in the wake of rapid, high-volume, multilevel reinsurance of portions of workers' compensation policies that were initially underpriced in the aggregate because of a highly competitive market. Reinsurance activities had the effect of subsidizing unprofitable workers' compensation insurance at the expense of insurance companies that reinsured the business. Five rating agencies took a series of rating downgrade actions on two of the five insurance companies GAO reviewed. The other three insurance companies experienced substantial losses but were not downgraded because either the insurer was more than adequately capitalized or the parent organization made capital contributions to cover the anticipated losses tied to the Unicover venture.

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