Update: NYC’s Largest Cab Insurer Ordered to Explore Sale After Losses

New York’s insurance regulator ordered American Transit Insurance Co. to immediately find capital and explore a sale in a damning report laying out its severe financial condition.

The report laid out dozens of potential financial improprieties and accounting problems at the city’s largest insurer of taxis and for-hire vehicles, and warned that the consequences of the company’s failure could be devastating for tens of thousands of drivers.

The insurer known as ATIC has had reserves that are “massively deficient,” according to a letter from New York’s Department of Financial Services dated April 3 that was posted to the DFS website. ATIC must take “immediate action” to cure its insolvency and should “explore all possible options to obtain funding,” according to the letter.

“If this situation is not resolved, ATIC is at significant risk of failure,” the letter warned. “This would be economically devastating for livery drivers, passengers, health care providers and the New York economy, and would disrupt vital transportation services,” DFS said.

DFS Letter to American Transit on Insolvency

ATIC said in a statement Thursday that the company is working to address a “longstanding issue of statutory solvency amid rampant fraud and escalating costs.” The company said it’s seeking a solution, which will “not unduly impact the broader market in an adverse manner.”

The documents showed years of previously unpublished correspondence and comprehensive state-mandated examinations that made clear ATIC’s dire financial circumstances. The report raises questions over how regulators under current Governor Kathy Hochul and her predecessor Andrew Cuomo failed to take serious action that would force the company to address its problems until recent months.

DFS said in a statement that under Hochul and current Superintendent Adrienne Harris the department is publishing the exam reports “for the first time in nearly 40 years,” and said it “took time to untangle the complex issues and history.”

Key Player

Run by Ralph Bisceglia, ATIC is a key player in the New York transit ecosystem, after building a market share of about 60% of the city’s taxis and rideshare vehicles by offering relatively cheaper plans than competitors. Bloomberg reported this week that industry analysts and taxi owners were concerned over the future of the company after it posted more than $700 million in net losses in the second quarter — a view shared by the DFS.

“A collapse of ATIC would leave tens of thousands of livery drivers uninsured and without a source of income,” DFS warned.

ATIC, which has insured drivers and owners of cabs in the New York-area for more than 50 years, has long disagreed with third-party actuaries over the amount it sets aside for claims, while it has fought off regulatory attempts to bolster its reserves for most of its existence.

DFS said regulators made significant efforts to address ATIC’s financial problems, including filing multiple petitions to put the company into liquidation, starting back in 1979. The New York State Supreme Court denied that petition, a decision that was upheld by the Appellate Division and the State Court of Appeals in the 1980s, DFS said.

The state Insurance Department filed another petition attempting to put ATIC into rehabilitation in 1987, after an exam report found the company was insolvent, but the case was resolved after ATIC received a $6.6 million infusion from its parent company.

In 1991, the Insurance Department again tried to put the company into rehabilitation, prompting ATIC to seek an injunction to halt the proceeding. Ultimately, a special referee assigned to arbitrate the case suggested ATIC seek a capital infusion. A year later, the company and the state reached a settlement that allowed ATIC to remain in business, but stipulated the company keep surplus contributions and submit to enhanced state monitoring, DFS said.

“Dangerous Practice”

The more recent reviews went beyond the company’s balance sheet. A 2018 examination identified issues with how the company was run, raising questions about its management, oversight and spending.

“ATIC did not have a written strategic plan, business plan, or capital management process, failed to maintain documentation in support of its enterprise risk management function, and did not have a written risk policy adopted by its board of directors,” according to the review, a summary of the examination by DFS and the National Association of Insurance Commissioners in the five-year period from the beginning of 2014 to the end of 2018.

DFS recommended ATIC recover payments made to affiliates and bonuses paid to company officers totaling $22 million, according to a separate letter from the agency dated May 17.

The company’s problems have increased as it deals with larger claim sizes driven by bigger settlements, along with jury and arbitration awards. The company is being sued in federal court by Uber Technologies Inc. for a “consistent pattern of failing to honor coverage for ride-share drivers in New York City who get into accidents.”

ATIC attorneys have denied the allegations, and the suit is ongoing, but DFS has zeroed in on the risk of inadequate reserves.

“Absent a substantial capital infusion, the company can only use current premiums to pay those past claims,” according to the April letter addressed to ATIC’s chief compliance and risk officer Cisca Hung. “This dangerous practice leaves no assets to pay for the claims incurred by current policyholders.”

DFS said it hasn’t been approached by any “credible acquirers” of the company or its book of business, but said the department is working on a “comprehensive plan to stabilize the insurance market, bring in new players, help drivers and protect all New Yorkers.”

The Department is also “taking action to prepare for all contingencies including further regulatory action if and when appropriate,” it said, in response to questions about whether the agency would seek to liquidate or restructure the insurer.

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