WEISS RATINGS

Workers' Comp Insurers Suffer 86 Percent Profit Decline Since 1998
Failure Rate 12 Times Higher Than Other Property and Casualty Insurers Combined

PALM BEACH GARDENS, Fla., March 7, 2001 - The nation's workers' compensation insurers suffered an 86 percent decline in profits, to $144 million during the first nine months of 2000 from a $1 billion peak during the same period in 1998, according to Weiss Ratings, Inc., the only independent provider of insurance company ratings and analyses. This is a much more severe decline than the six percent drop in overall profits experienced by the property and casualty insurance industry during the same time period.[1]

Moreover, the failure rate among workers' comp insurers in 2000 was 12 times higher than the failure rate of all other property and casualty insurers combined. Among workers' comp insurers, the failure rate was 7.7 percent (14 of 181). In contrast, among property and casualty insurers of all other categories, the failure rate in 2000 was only 0.6 percent (14 of 2,343).

"A common reason for these failures is inadequate policy reserves to cover the rising losses; to avoid failure, companies often resort to large premium increases to help shore up reserves. Consequently, buyers of workers' comp can expect to see double-digit rate increases for the next few years," commented Martin D. Weiss, Ph.D., chairman of Weiss Ratings. "In the 1990s, workers' comp insurers severely under priced policies and loosened underwriting standards. As with any type of insurance, this laxity eventually catches up with a company and becomes a serious drain on profits."

One fifth (20.7 percent) of the 2,524 property and casualty insurers rated by Weiss are considered "Weak" (D+ or lower). In contrast, almost one third (31.5 percent) of the 168 workers' comp insurers are rated "Weak."

Property and casualty insurers in the following three lines of business receiving the strongest and weakest ratings based on third quarter 2000 data are[2]:

Strongest Workers' Compensation Insurers

Company State Rating % of Premium
in Workers' Comp
Cypress Insurance Company Calif. A 96%
Cincinnati Indemnity Ohio A- 79%
Insurance Company of Greater New York N.Y. B+ 53%

Weakest Workers' Compensation Insurers

Company State Rating % of Premium
in Workers' Comp
Cedar Hill Assurance Company Texas E 100%
Kentucky Employers Mutual Insurance Company Ky. E 100%
Mastercare Insurance Company N.J. E 100%

Strongest Automobile Insurers

Company State Rating % of Premium
in Automobile
Tennessee Farmers Mutual Insurance Company Tenn. A+ 65%
Tennessee Farmers Mutual Assurance Company Tenn. A+ 100%
Auto-Owners Insurance Company Mich. A+ 62%

Weakest Automobile Insurers

Company State Rating % of Premium
in Automobile
Pafco General Ind. E 95%
Fortune Insurance Company Fla. E 88%
Superior Insurance Company Fla. E 99%

Strongest Homeowners Insurers

Company State Rating % of Premium
in Homeowners
Home Owners Insurance Company Mich. A+ 57%
State Farm Fire & Casualty Ill. A 62%
Lititz Mutual Insurance Company Pa. A- 63%

Weakest Homeowners Insurers

Company State Rating % of Premium
in Homeowners
Commercial Mutual Insurance Company Pa. E 67%
Lakeland Mutual Insurance Company N.Y. E 54%
Residence Mutual Insurance Company Calif. E+ 68%

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 can purchase a rating and summary analysis for as little as $7.95 through the Weiss Ratings web site at www.WeissRatings.com.

 

Property and Casualty Lines of Business

(Shown in Descending Order by Total Premium)

Line of Business

Total Premium ($)

Auto Liability and Physical Damage 138,610,618,504
Homeowners Multiple Peril 32,216,021,216
Workers Compensation 26,913,708,675
Other Liability 24,009,663,989
Commercial Multiple Peril 21,235,298,714
Group Accident and Health 8,345,168,401
Inland Marine 7,811,044,255
Allied Lines 6,313,576,764
Medical Malpractice 6,107,724,315
Fire 5,024,479,660
Other lines of business 3,566,204,000
Other Accident and Health 3,496,785,000
Surety 3,487,431,632
Mortgage Guaranty 3,264,407,000
Ocean Marine 1,975,557,681
Products Liability 1,801,641,764
Farm owners Multiple Peril 1,532,965,385
Financial Guaranty 1,526,755,000
Aircraft (All Perils) 1,334,332,000
Credit Accident and Health 1,037,461,000
Earthquake 859,117,791
Fidelity 804,267,373
Boiler and Machinery 699,838,494
Credit 462,168,000
Burglary and Theft 110,949,915
International 29,716,000
Total 30,257,695,328

Source: Weiss Ratings, Inc.


[1] Weiss defines workers' compensation insurers as those companies with at least 50 percent of their business in workers compensation. Weiss Ratings tracks 26 property and casualty lines of business. The five largest lines of business are auto, homeowners multiple peril, workers' compensation, other liability, and commercial multiple peril.

[2] A company is considered by Weiss Ratings to be in a particular line of business if at least 50 percent of its premium income is generated by that business.


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