WEISS RATINGSLife and Health Insurance Profits up 12.7%
Group Health Profits Down 64%
Weiss Upgrades 18 Large Insurers; Downgrades 13
PALM BEACH GARDENS, Fla., June 16, 1997 -- U.S. life, health and annuity insurance companies experienced record-breaking profits last year of $19.3 billion, according to an analysis of 1,521 insurers by Weiss Ratings, Inc., the only independent provider of insurance company ratings and analysis. This represents a 12.7% increase over the industry's 1995 profits of $17.1 billion.
Insurers reported underwriting gains in almost all major lines of business, with one exception: The profits from the group health sector plunged 64% to $512 million due primarily to cutthroat competition with HMOs. "This downturn in profits is already leading to higher rates for consumers, as companies are requesting and often being granted rate increases," said Martin Weiss, founder of Weiss Ratings, Inc.
Ratings at large firms improve
As part of its analyses, Weiss releases quarterly ratings that grade insurers' financial security. Of the 230 life, health and annuity companies with assets over $1 billion, 18 received upgrades based on the release of 1996 year-end data, while 13 were downgraded. For small firms, however, downgrades outnumbered upgrades by nearly a 3 to 2 margin.
Weiss rates companies on a scale of A (excellent) to F (failed). The three largest insurers receiving upgrades were:• Teachers' Insurance & Annuity Assoc. of America (NY) upgraded from B+ to A-
In addition, a significant downgrade occurred with Peoples Security Life Insurance Company, a subsidiary of Providian Corp., moving from B- to C+. The company reported growth in assets and premiums without corresponding growth in capital and surplus to support the additional business.
Capital and surplus up 11.8%, yet four small firms require regulatory action
The overall industry's capital and surplus continued to grow -- by a healthy 11.8% during 1996 -- outstripping asset growth of 9.7%. The asset valuation reserve (AVR), the reserves set aside to cushion against investment losses on bonds and stocks, also grew significantly -- by 11% to $32 billion -- reflecting the growing stock values in the industry's investment portfolios.
However, there are eight companies that will require some level of intervention by the state insurance commissioners, based upon their risk-based capital (a standard measure of financial strength used by regulators) -- up from six companies in that category in 1995. Among these, four have less than 70% of required capital and are subject to state takeovers: American Investors Life Insurance Company (AR) with risk-based capital of 30.6%, Dallas General Life Insurance Company (TX) with 54.6%, Industrial Casualty Insurance Company (IL) with 35.7% and Regal Life of America Insurance Company (TX) with 65.2%.
Troubled real estate decreases while junk bonds increase
Nonperforming mortgages and repossessed real estate decreased by 13.6% during 1996 to $8.0 billion, while junk bond holdings increased for the third year in a row -- up 9.3% to $64.3 billion. However, as a percentage of capital, junk bonds continue to decline from their highs in the early 1990s because the industry's capital is growing at a faster rate.
America's consumer advocate for financial safety
"While the profitability of the overall life and health insurance industry has improved, there are still a number of companies in very poor financial condition," commented Mr. Weiss. "With so many insurance companies to choose from, there is no need to do business with an unsafe company. The financial risks and headaches are just not worth it."
Weiss Ratings has established a reputation 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.
According to a 1994 study by the U.S. General Accounting Office (GAO), the Weiss ratings were more accurate than those of AM Best, Duff & Phelps, Moody's and S&P in warning of insurers that subsequently became financially impaired. And a follow-up study by Weiss, using the same methodology as the GAO with data through May 1997, reaffirms the GAO's conclusions. Further, it demonstrates that Weiss was also the most accurate in selecting the truly safest companies for consumers.
Weiss issues safety ratings on over 16,000 financial institutions, including life and health insurers, Blue Cross/Blue Shield plans, HMOs, property and casualty insurers, banks and brokers.
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 are also available at many local libraries or through insurance agents.
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