WEISS RATINGSLife and Health Insurers Suffer 50% Decline in Capital Gains
|Overall Profits Down 1.5%|
PALM BEACH GARDENS, Fla., February 23, 2000 - The nation's life and health insurers suffered a 50 percent, or $1.8 billion, decline in realized capital gains in the first nine months of 1999, according to a study by Weiss Ratings, Inc., the only independent provider of insurance company ratings and analyses.
In contrast, the industry's profits from its core business -- underwriting -- increased by only 4.6 percent, or $1.6 billion, in the same period. Combining both capital gains and underwriting, the industry's overall profits declined $200 million, or 1.5 percent.
"If interest rates continue to rise, it's going to be more difficult for insurers to take profits on their bond portfolios. In that scenario, we should anticipate further declines in the industry's net profits," commented Martin D. Weiss, Ph.D., chairman of Weiss Ratings, Inc.
Surplus notes becoming a larger portion of capital
Holdings of surplus notes, a unique form of subordinated debt treated as capital, were up nearly $2 billion, or 18 percent, as of September 30, 1999, compared to the same period in the previous year. At the same time, total capital rose only 4.5 percent, to $202 billion from $194 billion in 1998. As a result, surplus notes represented 6.1 percent of total capital, up from 5.4 percent in 1998.
"Surplus notes are a gimmick commonly used in the industry to artificially boost capital, and companies that rely on it too heavily are weaker than they might appear to be," Weiss commented.
Large companies with the highest percentage of surplus notes include American Skandia Life Assurance Corporation (Conn.), with 67 percent of its capital comprised of surplus notes; Sun Life Assurance Company of Canada (U.S.) (Del.), with 66 percent; and TMG Life Insurance Company (N.D.), with 58 percent.
Notable Upgrades and Downgrades
Among the 1,171 insurers reviewed by Weiss, 14 were upgraded and 29 were downgraded.
|Notable upgrades include:|
|Western United Life Assurance Company (Wash.)||from D+ to C-|
|Servco Life Insurance Company (Texas)||from D+ to C-|
|Delta Dental Insurance Company (Ill.)||from E+ to C-|
|Notable downgrades include:|
|UNUM Life Insurance Company of America (Maine)||from B- to C+|
|Delta Life and Annuity (Iowa)||from B- to C+|
|Wisconsin National Life Insurance Company (Wis.)||from B- to C+|
The Weiss ratings are based on an analysis of a company's risk-adjusted 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 more than 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 risk-adjusted performance of more than 10,000 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, and libraries.
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