WEISS RATINGSLife and Health Insurers Enjoy 13% Profit Rise
|Despite Good Times, 70 Companies Rated In Weakest Category|
PALM BEACH GARDENS, Fla., February 17, 1998 -- The nation's life and health insurers, continuing to benefit from a strong bond market and a growing economy, earned $17.7 billion in the first nine months of 1997, representing a 13% increase over the same period in 1996. However, 70 companies were rated "very weak" (E+, E, or E-) compared to 59 a year earlier, according to Weiss Ratings, Inc., a leading provider of insurance industry ratings and analyses.
"Despite the favorable environment, we are seeing a growing gap between the financially strong and the weakest companies. Our data indicates a significant increase in severely undercapitalized insurers," said Martin Weiss, Ph.D., chairman of Weiss Ratings, Inc. "Consumers shopping for insurance need to be more selective than ever to protect themselves from an insurance company failure."
Total Profits vs. Core Profits
Although industry-wide profits were up, a closer look at the first nine-month numbers reveals some early warning signs of a slowdown. First, the rate of profit growth has slowed considerably, down from 39.7% in the comparable period of 1996, and 34.4% in 1995. Second, the growth in core operating profits (excluding capital gains) was a significantly less robust 5.8%, down from 9.3% in 1996 and 16.2% in 1995.
"While most financial institutions are benefiting from the current economic expansion, tight competition is squeezing profit margins," commented Dr. Weiss. "This should benefit consumers as long as they stick with a safe insurer."
70 Companies in the "Weakest" Category
Weiss grades companies from A to F, with the "E-" representing the weakest possible condition, short of failure or takeover by regulators. According to data compiled by the US General Accounting Office (GAO) and by Weiss, companies with Weiss ratings of E+, E, or E- have had a very high (42.3%) probability of failure over a four-year period.
Of the lowest rated companies, Key Life (IN), Tandy Life (TX), and National Foundation Life (DE) were recently downgraded from D- (weak) to E+ (very weak).
Other Noteworthy Upgrades and Downgrades
Among the 1,198 company ratings Weiss reviewed, 19 were upgraded and 45 downgraded. Notable upgrades include:• Canada Life Insurance Company of America upgraded from C+ to B-
The notable downgrades include:• Trans-General Life Insurance Company downgraded from B- to C+
Capital and Surplus Growing
High profits boosted the industry's capital and surplus by 14.3% over third quarter 1996 -- up from $160.8 billion at September 30, 1996 to $183.7 billion at September 30, 1997. However, part of this capital growth was due to an increased reliance on surplus notes -- a form of debt that regulators count as capital -- which were up 28% over 1996 levels.
Asset Quality Continues to Improve
Holdings of repossessed real estate declined 20% to $6.7 billion at the end of the third quarter of 1997. Meanwhile, troubled real estate now represents only 3.6% of capital and surplus, compared to 5.2% in 1996.
The Weiss ratings are based on an analysis of a company's capital, five-year historical profitability, quality of investments, liquidity, and stability. The latter category combines a series of factors including asset growth, premium growth, strength of affiliate companies, and risk diversification.
Weiss issues safety ratings on over 16,000 financial institutions, including HMOs, life and health insurers, Blue Cross/Blue Shield plans, property and casualty insurers, banks and brokers. Weiss Ratings 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.
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.
Note: "Total profits" include the gains from operations, capital gains, dividends to policyholders and federal income taxes. "Core profits" represent strictly the net gain from operations, excluding capital gains, dividends to policyholders and federal income taxes.
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