Fees Taint Insurance Company Ratings

PALM BEACH GARDENS, FL, March 3, 1995 - Insurance company ratings paid for by the rated companies consistently failed to alert consumers of future failures, according to a study by Weiss Ratings, Inc. In contrast, two independent rating systems warned consumers well in advance.

The Weiss study updates a report by the U.S. General Accounting Office (GAO), which favorably compared Weiss ratings to those of four other rating agencies from August 1989 to June 1992. The Weiss study, using the same methodology as the GAO, focuses on the period from July 1992 through November 1994.

For the five largest failures that have occurred since the GAO study, the independent rating systems -- Weiss ratings and the Standard & Poors "Qualified Ratings" -- gave clear advance warnings. Weiss ratings were the earliest, with an average of 475 days advance notice; and the S&P Qualified Ratings were next, with an average of 321 days. The paid-for ratings published by Best, Duff & Phelps and S&P identified the companies as "vulnerable" only after regulators took action.

"When ratings are bought by the companies, conflicts of interest bias the rating process, resulting in reduced accuracy and excessive time delays in responding to known problems," said Martin Weiss, president of Weiss Ratings. "Independence is the key to protecting the consumer's interest."

In addition, the update shows that Weiss was the quickest to reflect improvements in the financial health of insurance companies. When large insurance companies strengthened their balance sheets in 1991-93, Weiss issued more upgrades than downgrades, while the other rating agencies issued mostly downgrades.

Weiss Ratings, Inc. is a consumer-oriented publisher of insurance company safety ratings. Consumers may obtain a rating over the phone for $15 per company, a one-page Personal Safety Brief for $25 or an 18-page Ratings Analysis Report for $45 from Weiss Ratings, Inc., 4176 Burns Rd., Palm Beach Gardens, FL 33410; 1-800-289-9222.

15430 Endeavour Drive, Jupiter, FL 33478 · (561) 627-3300 · www.weissratings.com