WEISS RATINGS12 Large Life Insurers Still Have Too Much Junk
|Warning To Consumers|
PALM BEACH GARDENS, Fla., May 8, 1997 -- Despite the industry's efforts to reduce its exposure to the risk of junk bonds in recent years, 12 large life insurers still have over $1 in junk for every dollar of capital, according to a just-released study by Weiss Ratings, Inc.
Among these 12 companies (with $2 billion or more in total assets), Aetna Life and Annuity holds $971 million in junk bonds as compared to $864 million in capital. Jackson National Life has nearly $2.2 billion in junk, compared to $1.8 billion in capital. Pacific Corinthian Life, the successor company to First Capital Life Insurance Company (which failed because of its excessive junk bond exposure), still has $242 million, representing $1.56 per dollar of capital. Another large, but lesser known company, Oakre Life, has nearly $3 of junk for each dollar of capital!
"Just because the economy is currently in a boom phase doesn't mean consumers can ignore the risk their insurance companies are taking. Junk bonds are a factor they must consider now when buying longer term insurance and annuities," says Martin D. Weiss, founder of Weiss Ratings.
In the early 1990s, junk bonds directly jeopardized the safety of policyholders, especially those with fixed annuities and cash value life insurance. Their companies failed and they were denied access to their funds. Hundreds of thousands of policyholders lost money -- as much as 50 cents on the dollar.
Today, although the economy is currently strong, a recession in future years will inevitably cause more frequent defaults on junk bonds. Since most insurance policies extend over decades, this represents a serious cause for concern to consumers who are buying these policies today.
Adding to these concerns, some large companies, which in the past had been reducing their junk bond holdings, are now buying these higher yielding bonds more aggressively in order to compete with mutual funds in a booming stock market.
For example, at year-end 1996, Prudential Life increased its junk to $6.9 billion, a 24% increase over the prior year; while Met Life's junk bonds jumped 153.6% to $2.5 billion.
"Some of these companies previously bragged about their abstinence from these high-yield and high-risk investments," commented Mr. Weiss. "Now they're so confident in the booming economy, they have let down their guard."
Weiss Ratings has established a name as "America's Consumer Advocate for Financial Safety" because it is the only major rating agency that receives no compensation from the companies it rates. Revenues are derived strictly from sales of its products to consumers and businesses.
In addition, Weiss earned its reputation for accuracy in a study by the US General Accounting Office (GAO), covering the major insurance rating agencies. Weiss issues safety ratings on over 16,000 financial institutions, including life and health insurers, Blue Cross/Blue Shield companies, HMOs, property and casualty insurers, banks and brokers. The Weiss Ratings are updated and published quarterly.
Consumers who need more information on the financial safety of a specific company may purchase a rating or analysis directly from Weiss for as little as $15 by calling 1-800-289-9222. Weiss Safety Ratings may also be available at their local library or from their insurance agent.
Life Insurers With Largest Junk Bond Exposure
(Life and health insurers with $2 billion or more in assets
and $1 or more in junk bonds for each dollar of capital.)
|Company Name (ST)||Total
|Oakre Life (MO)||2,103||233||78||298||C|
|Pacific Corinthian (CA)||4,009||242||155||156||D|
|Keyport Life (RI)||13,207||967||720||134||B|
|American Enterprise Life (IN)||4,225||364||289||126||B|
|USG Annuity & Life (OK)||6,856||569||471||121||B-|
|Security First Life (DE)||2,914||154||128||120||C|
|Jackson National Life (MI)||27,357||2,157||1,814||119||C+|
|Aetna Life Insurance & Assurance (CT)||28,820||971||864||112||C+|
|Bankers United Life & Accident (TN)||3,401||241||217||111||C+|
|Provident Life & Accident (TN)||11,542||720||685||105||C+|
|Allmerica Financial Life & Annuity (DE)||6,679||287||279||103||C|
|Benificial Standard Life (CA)||2,486||176||173||102||C|
Data Date: 12/31/96
Source: Weiss Ratings, Inc., Palm Beach Gardens, FL
Capital: Surplus plus Asset Valuation Reserve
Junk Bonds: Bonds rated Class 3 or lower by the National Association of Insurance Commissioners (equivalent to S&P bond ratings of BB or lower)
Weiss Safety Rating: A = Excellent; B = Good; C = Fair; D = Weak; E = Very Weak; Plus sign = higher end of grade range; Minus sign = lower end of range. Since ratings consider many other factors than junk bond exposure, it is still possible for some of these companies to achieve a good rating if there are other offsetting strengths.
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