WEISS RATINGS

Life and Health Insurers Suffer 42 Percent Profit Decline
Industry's Woes Include Falling Demand for Insurance,
Falling Yield on Investment Portfolios, Rising Defaults on Junk Bonds

PALM BEACH GARDENS, Fla., December 3, 2001 - Profits of the nation's life and health insurers declined $6 billion, or 42 percent, during the first six months of 2001, compared to the same period in 2000, according to Weiss Ratings, Inc., the only provider of independent insurance company ratings and analyses.

Meanwhile, the industry's return on assets fell 44 percent to 0.51 percent, and its return on equity fell 45 percent to 7.3 percent, with the latter falling below 10 percent for the first time since 1995. The profit declines are primarily due to a $2.2 billion capital loss on the sale of invested assets as well as a $3.1 billion decline in overall operating profits.

"All of these declines took place in the first and second quarters of the year, long before the September 11 events, and they began well before the onset of the recession, now officially pegged to March," commented Martin D. Weiss, Ph.D., chairman of Weiss Ratings, Inc. "With the recession deepening in the second half and continuing into 2002, more profit declines are very likely as consumers delay the purchase of insurance, frequently viewed as a non-essential item."

In addition, insurers selling fixed annuities face a double threat: First, with rapidly falling interest rates, income on their investment portfolios may have fallen below the rates they have committed to pay to policyholders. At the same time, junk bonds, one of the industry's favorite vehicles for generating more yield in this environment, have exposed insurers to increasing defaults. The largest fixed annuity writers with the largest exposure to junk bond holdings include1:

Company Name Weiss
Safety
Rating
Junk Bonds
as % of
Capital2
Fidelity & Guaranty Life Ins Co (Md.) C 195.5
American Investors Life Ins Co (Kan.) C 174.2
AIG Life Ins Co (Del.) B- 156.0
London Pacific Life & Annuity Co (N.C.) C- 140.0
Conseco Annuity Assurance Co (Ill.) C- 130.1
USG Annuity & Life Co (Okla.) B 129.3
Jackson National Life Ins Co (Mich.) C+ 127.3
American Enterprise Life Ins Co (Ind.) B 122.3
American Internatl Life Asr Co of NY B 122.0
Western-Southern Life Asr Co (Ohio) B 119.3

A=Excellent; B=Good; C=Fair; D=Weak; E=Very Weak

"The average default rate on junk bonds more than doubled even before the onset of the recession," Dr. Weiss pointed out. "Now, as the economy declines, bond defaults are bound to be even more frequent, potentially placing some insurers with high junk bond exposure at risk of failure. However, this factor is only one of many measures we consider in assigning an overall Safety Rating."

Weiss recommends consumers do their utmost to avoid insurers with a Weiss Safety Rating of D+ or lower, while favoring those with a rating of B+ or higher.

Notable Upgrades and Downgrades

Among the 980 companies reviewed by Weiss using second quarter 2001 data, 7 were upgraded and 13 were downgraded. Notable upgrades include:

• Savings Bank Life Insurance Company (Conn.) from D+ to C-
Notable downgrades include:
• Scottish Re US Inc (Del) from C- to D+
• American Life & Annuity Ins Co (Texas) from C to D
• OakRe Life Ins Co (Mo.) from B- to C

The Weiss Safety 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 15,000 financial institutions, including life and health insurers, HMOs, Blue Cross Blue Shield plans, property and casualty insurers, banks, and brokers. Weiss also rates the risk-adjusted performance of more than 11,000 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, or starting at $15 by calling (800) 289 9222.


1 Largest fixed annuity insurers are identified as those companies with aggregate annuity reserves of $1 billion or more, as reported in Exhibit 8, item B in the 2000 annual statutory statement filed with state departments of insurance. This does not distinguish between annuities that are in the accumulation phase versus those currently being paid out.

2 Capital includes capital, surplus, and asset valuation reserve.


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