WEISS RATINGSLife and Health Insurers' Operating Profits Drop $203 Million;
Capital Gains Jump $164.8 Million
PALM BEACH GARDENS, Fla., August 21, 2000 - The nation's life and health insurers experienced a $203 million, or 1.6 percent, decline in operating profits during the first three months of 2000, as compared to the year-earlier period, according to a study by Weiss Ratings, Inc., the only independent provider of insurance company ratings and analyses. Drags on operating profits included an increase in surrenders and life insurance claims.
However, at the same time, the life and health companies realized a $164.8 million increase in capital gains which helped offset the profit decline. After adjusting for some miscellaneous items  , the industry wound up with an overall net profit that was virtually flat when compared with last year's -- up a slight 0.6 percent, or $37.4 million.
"We've been in an ideal environment for the insurance industry -- a strong economy, low inflation, few bad mortgages or real estate, and even rising bond prices despite the Fed's recent rate hikes. In this context, the industry's flat overall results are actually a bit disappointing, raising questions about what might happen in a less favorable environment," commented Martin D. Weiss, Ph.D., chairman of Weiss Ratings. With this in mind, Weiss urges consumers to continue to prioritize safety when selecting an insurer.
Capital and surplus increases slightly
Capital and surplus at March 31, 2000 totaled nearly $200 billion, up 2.1 percent from March 31, 1999. However, some companies continued to rely on "surplus notes," a form of subordinated debt that they are allowed to treat as "capital." Total surplus notes held by insurers amounted to $11.8 billion, or 5.9 percent of total capital and surplus, during the first quarter.
"No matter what the industry calls them," commented Dr. Weiss, "these surplus notes are, in actuality, a form of debt, and throwing them in with capital can obfuscate weaknesses at some firms."
Notable Upgrades and Downgrades
Among the 1,162 insurers reviewed by Weiss, 14 were upgraded and 17 were downgraded.
|Notable upgrades include:|
|• National Benefit Life Insurance Company (N.Y.)||from B to B+|
|• Royal Life Insurance Company of New York (N.Y.)||from C to B-|
|• Fiduciary Insurance Company of America (N.Y.)||from D+ to C|
|Notable downgrades include:|
|• Medical Community Insurance Company (Texas)||from E+ to E-|
|• First Colony Life Insurance Company (Va.)||from B+ to B|
|• Security Life Insurance Company of America (Minn.)||from D- to E|
The remaining difference comprised dividends paid to policyholders and federal income taxes.
The distribution of ratings for all life and health insurers rated by Weiss breaks out as follows:
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. For more information, visit the Weiss Ratings web site at www.WeissRatings.com.
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