Simple explanation of the Unicover workers compensation reinsurance pool which collapsed in 1999.
The collapse of the Unicover workers compensation reinsurance pools had a significant impact on the WC market as a whole in 1999. Unicover Managers, Inc. (name changed to Cragwood Managers) is a managing general agency from South Plainfield, NJ and was created in 1994. It managed three reinsurance pools known as the Occupational Accident Reinsurance Pool.
A collection of life insurance companies reinsured the medical portion of workers compensation insurance policies written by primary WC carriers. Reinsurers usually become responsible for these type of “carve-out” losses at $500,000 to $1 million. In the Unicover arrangement, attachment points were as low as $10,000.
Risks from the pool were passed on to other reinsurers (or retrocessionaires). Some companies passed on their exposure only to take it back again (reinsurer to reinsurer). Industry observers estimate the pools became responsible for about $2 billion in losses.
The Pool members included Cologne Life Re (General Re subsidiary), CIGNA Corp’s Connecticut General Life Insurance Co., Phoenix Home Life Insurance Co., Lincoln National Life Insurance Corp., Reliance Group Holdings, Sun Life Assurance Co. of Canada, and Reliastar Financial Services.
The pool stopped writing new business in early 1999 due to these events:
- Connecticut DOI ordered life and health carriers to stop writing WC coverage (through this pool) in February 1999
- Cologne Re, a pool participant, projected losses of $275 million
- Sun Life Assurance Co. of Canada projected losses of $910 million
- Several pool members withdrew following a huge jump in claims volume
Some observers said that due to the overcapacity in the market, members of the life insurance industry invested in a scheme they didn’t investigate very fully. Life insurers thought they were reinsuring accident-health coverage, but the medical only coverage for workers compensation involves a totally different loss experience.
April 18, 2001 — Moody’s Investor Services issued a report on the Unicover Managers Inc. debacle, contending that the current amount of Unicover-related charges still exceeds $1.1 billion. There could be more financial damage to come as litigation, arbitration and settlement negotiations continue to this day.
Unicover is now known as Cragwood Managers LLC.