WEISS RATINGSLife and Health Insurers Bounce Back in 1999
with 15.4% Increase in Overall Net Profits
|Group Health Business Sustains Heavy Losses|
PALM BEACH GARDENS, Fla., June 19, 2000 - The nation's life and health insurers enjoyed a 15.4% increase in overall net profits in 1999, indicating that the 1998 profit decline was a temporary interruption in a five-year upward trend, according to a recent study by Weiss Ratings, Inc., the only independent provider of insurance company ratings and analyses.
Nearly all product lines were in synch with the general trend including individual life (up from $6.1 billion to $7.4 billion), individual annuity (from $4.4 billion to $5.3 billion), group life (from $1.1 billion to $1.6 billion), and group annuity (from $3.6 billion to $3.9 billion).
The only major exception was group health which ranked as the weakest sector for the second year in a row with a $555.7 million loss in 1999 and a $148.3 million loss in 1998.
Life insurers posting group health losses include: Prudential Insurance Company of America (N.J.), with a loss of $522 million on $2.6 billion of group health premiums; General and Cologne Life Reinsurance Company of America (Conn.), with a $133 million loss on $231 million of premiums; and Employers Life Insurance Company of Wausau (Wis.), with a $52 million loss on $215 million of premiums.
"Although the overall industry is doing quite well, companies with group health business continue to be plagued with the same problems that are widespread in the managed care industry," commented Martin Weiss Ph.D., chairman of Weiss Ratings, Inc. "As a result, consumers should expect to see increased health insurance premiums, more mergers, changes in employer offerings, and changes in product design."
Growth of Insurers' Junk Bond Holdings Slows
The double-digit annual growth of life insurers' junk bond holdings slowed to nine percent during 1999, compared to an average annual rate of 18.4% since 1996. At December 31, 1999, junk bond holdings totaled $102.6 billion versus $94.3 billion at December 31, 1998. As a result, insurers held 40.4 cents in junk bonds per dollar of capital, up slightly from 39.8 cents in 1998.
CMOs and Derivative Instruments Remain Level As Portion of Invested Assets
Holdings of collateralized mortgage obligations (CMOs) and other asset-backed securities increased a modest 2.8% in 1999, from $377 billion to $387 billion, remaining at approximately 20% of total invested assets. However, the riskiest types of CMOs, defined by the National Association of Insurance Commissioners as multi-class, non-defined, mortgage- and asset-backed securities, increased 19.6%, from $103 billion in 1998 to $123 billion at December 31, 1999.
"With the Federal Reserve raising interest rates to their highest levels since 1991 in an attempt to slow down the economy, large holdings of junk bonds and high-risk derivatives could signal problems for some companies," commented Weiss.
Derivative instruments including such investments as options, futures, and swaps totaled $3.4 billion in 1999, representing less than one percent of total invested assets. Although this was a 43% increase over the 1998 level of $2.4 billion, as a portion of invested assets it remained low.
Noteworthy Upgrades and Downgrades
Among the 1,287 company ratings reviewed by Weiss, 27 companies were upgraded and 43 were downgraded from the previous quarter's review.
|Notable upgrades include:|
|• Cova Financial Services Life Insurance Company (Mo.)||from D+ to C|
|• SunAmerica Life Insurance Company (Ariz.)||from C+ to B-|
|• Penn Mutual Life Insurance Company (Pa.)||from C+ to B-|
Notable downgrades include:
|• Peoples Benefit Life Insurance Company (Iowa)||from B- to C+|
|• United Family Life Insurance Company (Ga.)||from B- to C+|
|• Park Avenue Life Insurance Company (Del.)||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.
Consumers needing 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' ratings are also available at many public libraries. For more information, visit the Weiss Ratings web site at www.WeissRatings.com.
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