WEISS RATINGS

Life and Health Insurers' Profits Decline
for the First Time in Four Years
Investment Gains Unable to Compensate for Lower Operating Results

PALM BEACH GARDENS, Fla., February 16, 1999 — During the first nine months of 1998, U.S. life and health insurers reported a $17.8 billion net profit, down from the $18.0 billion recorded over the same period last year, according to Weiss Ratings, Inc., a leading provider of insurance company ratings and analyses.

This decrease, although minor, represents the first year of decline following three strong years of growth. Moreover, the net profits slid in spite of a 67% increase (to $3.6 billion) in realized capital gains over the year-ago period.

"This is a significant trend change," commented Martin Weiss, Ph.D., chairman of Weiss Ratings, Inc. "Despite much better capital gains, the total results were still down. It begs the question: What will the results look like if major capital gains are not possible?"

Noteworthy Upgrades and Downgrades

Among the 1,202 life and health insurers reviewed by Weiss, 26 were upgraded and 16 were downgraded.

Notable upgrades include:
Company Previous
Rating
New
Rating
Acacia National Life Insurance Company (Va.) C B-
Golden American Life Insurance Company (Del.) C+ B-
Security Benefit Life Insurance Company (Kan.) C+ B-

Notable downgrades include:
Company Previous
Rating
New
Rating
Abundant Life Insurance Company (Okla.) D+ E+
Swiss Re Life and Health America Inc (N.Y.) B- C+
United Benefit Life Insurance Company (Ind.) D E+

Common Stock Holdings Decline

Aggressive sales of common stock were made by many life and health companies apparently to generate profits during the period. While the S&P 500 index was up more than seven percent in the 12-month period ending September 30, 1998, the total market value of the industry's common stock holdings -- in both affiliated and unaffiliated companies -- dropped by 4.5%. This represents a notable contrast to the fast growth of previous years -- 23% in 1997, 18% in 1996, and nine percent in 1995.

"The fact that the realized profits were still not enough to produce continuing increases in total profits supports the notion that the industry may be headed for a profit decline," commented Weiss.

Capital and Surplus Slows to a Moderate Pace

At September 30, 1998, the industry's capital and surplus continued to grow, but cooled to a more modest four percent pace in contrast to the 15% growth rates in the same periods during 1997 and 1996. Further, surplus notes, a form of debt that regulators count as "capital," decreased during the period by five percent.

Annuity Deposits Climb At a Faster Clip

Growth in annuity deposits recorded by life and health insurers during the first three quarters of 1998 showed no signs of softening, rising by 27% over the same period in 1997.

This continued a trend of accelerating advances during the last three years, with deposits growing five percent in 1995, 10% in 1996, and 19% in 1997.

Repossessed Real Estate Continues Decline

Repossessed real estate on the books dropped an additional $2.6 billion during the period, reducing the industry total to $4.2 billion. This category now represents only 2.2% of capital as opposed to the 3.6% carried through September 30, 1997.

Weiss' ratings are based on an analysis of a company's 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 also rates the Y2K preparedness of many insurers and banks, as well as the risk-adjusted performance of more than 5,000 mutual funds. 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, businesses, agents, and libraries.

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.


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