June 21, 2000

The Honorable David M. Walker
Comptroller General
U.S. General Accounting Office
441 G Street, N.W.
Washington, D.C. 20548

Dear Mr. Walker:

We are writing to ask that you conduct an investigation of how the insurance rating organizations have responded to the difficulties experienced by Reliance Insurance Company. Just recently, one of these organizations, A.M. Best, downgraded Reliance from a rating of A- to a rating of B++. Given the fact that the seriousness of Reliance’s problems has been evident for at least two years, we question both why the ratings organizations have taken so long to react and also whether even their current rating accurately reflects the condition of the company.

Over the last two years, Reliance has lost nearly $2 billion (more than 80%) of its market capitalization. Estimates are that the company’s involvement in the failed Unicover Reinsurance Pool may cost it $1 billion if other Unicover participants refuse to pay their share of the claims. Reliance is also more than $700 million in debt, and $500 million of this amount is supposed to be repaid later this summer. Finally, Reliance has identified current liabilities for unpaid claims and related expenses that amount to more than $8 billion.

We ask that your investigation address the following matters:

• What information concerning events at Reliance did the ratings organizations have; from whom and when did they get it; and how and when did they react?
  
• Do the ratings that Reliance received from these organizations meaningfully reflect the condition of the company?
  
• What relationships (informational and other) exist between the ratings organizations and the Pennsylvania Insurance Department (and other state insurance departments where Reliance does business) and between the ratings organizations and Reliance Insurance Company?
  
• When and how did the ratings organizations become aware of Reliance’s relationship with the Unicover Reinsurance Pool? What information about Reliance’s role in Unicover did the ratings organizations have? What, if any, outstanding losses from Unicover do the ratings organizations believe Reliance may still face? What effect did Reliance’s involvement in the Unicover Reinsurance Pool have on the ratings it received? How did the ratings organizations’ treatment of other participants in the Unicover Reinsurance Pool compare with ratings received by Reliance?
  
• What recommendations do you and the ratings organizations make for improving the timeliness of their access to accurate company information as well as the responsiveness of ratings to the information received?

We look forward to seeing the results of your investigation. If you have any questions regarding this matter, please contact us, or you may have your staff contact Bruce Gwinn of the Committee Minority staff at (202) 226-3400. Thank you for your cooperation and assistance.

Sincerely,

JOHN D. DINGELL
RANKING MEMBER
COMMITTEE ON COMMERCE

RON KLINK
RANKING MEMBER
SUBCOMMITTEE ON OVERSIGHT
AND INVESTIGATIONS