WEISS RATINGS

Life & Health Insurers Suffer $11.1 Billion Profit Plunge in 2001
Sluggish Market Contributes to $4.2 Billion Loss on Sales of Investments

PALM BEACH GARDENS, Fla., July 1, 2002 - The net profits of the nation's life and health insurers plummeted by $11.1 billion, or 42 percent, in 2001, as the industry earned $15.3 billion, compared to $26.4 billion in 2000, according to research by Weiss Ratings, Inc., the nation's leading independent provider of ratings and analyses of financial services companies, mutual funds and stocks.

The profit declines are primarily due to two factors: a $4.2 billion capital loss on the sale of invested assets and a $5.6 billion decline in net operating income. "Insurance companies seem to have been caught flat-footed in the market just like many average investors," commented Martin D. Weiss, Ph.D., chairman of Weiss Ratings, Inc. "This has not impacted policyholders to date, because most large companies are still in the black and many have deep pockets. However, a continuing downtrend could result in insolvencies among insurers that are already on the weak side - companies that consumers should seek to avoid."

Meanwhile, the industry's return on assets fell 23.7 percent to 0.60 percent, and its return on equity fell 24.7 percent to 8.49 percent. Lines of business showing the greatest profit decline include group health (from $2.1 billion in 2000 to $880 million in 2001), individual annuity (from $3.8 billion to $1.6 billion), and group annuity ($4.3 billion to $2.1 billion). Of the $1.2 billion profit decline in group health, a few large companies contributed $1.1 billion, or 92%, to the decrease.

Insurers reporting the largest declines in income during 2001, increasing their vulnerability to further market uncertainties, include:

Company Domicile
State
Weiss
Safety
Rating
Net
Income
2000
$Mil
Net
Income
2001
$Mil
Change
$Mil
Northwestern Mutual Life Insurance Wis. A 1,828 662 -1,167
Prudential Insurance Co. of America N.J. B- 189 -896 -1,085
Swiss Re Life & Health America, Inc. Conn. C- -651 -1,631 -980
Hartford Life & Annuity Insurance Co Conn. B+ 22 -660 -681
IDS Life Insurance Company Minn. B 345 -320 -665
The Travelers Insurance Co. Conn. B 1,052 389 -663
Teachers Insurance & Annuity Assoc. N.Y. A+ 1,222 585 -637
Guardian Life Insurance Co. of America N.Y. A 387 -202 -589
Equitable Life Assurance Society N.Y. B- 1,057 544 -513
Lincoln National Life Insurance Co. Ind. B- 570 68 -502
Weiss Safety Rating: A=Excellent; B=Good; C=Fair; D=Weak; E=Very Weak

Junk Bond Portfolios Continue to Grow

The rate of growth in insurers' total junk bond holdings rose to 6.2 percent in 2001 as compared to 3.9 percent in 2000, with the most speculative portion of insurers' junk bond portfolios - Classes 5 and 6 - soaring to record holdings. Class 5 bonds, those with ratings equivalent to CCC, CC, and C by a major bond rating agency, increased from $7.9 billion to $10.7 billion, representing a 35.3 percent jump from 2000 to 2001. Class 6 bonds, those in or near default, increased from $2.2 billion to $5.1 billion, representing a 133.7 percent jump during the same period.

"Last year's dramatic increase in junk bond holdings is another warning sign of trouble," added Dr. Weiss. "Consumers must look closely at the financial condition of any insurer that they are considering doing business with in order to minimize the risk of dealing with one that is potentially weak."

Notable Upgrades and Downgrades

Among the 1,147 insurers reviewed by Weiss using year-end 2001 data, 15 companies were upgraded and 70 were downgraded. Companies upgraded were:

· Equitable Life Assurance Soc of the US (N.Y.) from C+ to B-
· Liberty Life Insurance Co. (S.C.) from C+ to B-
· National Integrity Life Insurance Co. (N.Y.) from C- to C

Downgraded companies were:

· Bankers Life & Casualty Co. (Ill.) from C to D+
· Conseco Annuity Assurance Co. (Ill.) from C- to D
· Reliastar Life Insurance Co. (Minn.) 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 and more than 9,000 stocks. 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 website, weissratings.com, or starting at $15 by calling 800-289-9222.


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