WEISS RATINGS

Property and Casualty Insurers Suffer $9 Billion Loss in 2001
Terrorist Attacks and Corporate Bankruptcies Contribute
to Record Claims of $381 Billion

PALM BEACH GARDENS, Fla., July 8, 2002 - The nation's property and casualty insurers reported a $9 billion loss in 2001, compared to a $27 billion profit 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.

By year-end, claims surged to a record $381 billion, an increase of $175 billion, or 86 percent, over the $205 billion in claims reported in 2000. The loss, the first ever for the industry, reflects not only catastrophic losses from the September 11 attacks but also a general increase in claims across a majority of lines of business. The increases in claims for the industry's predominant lines of business are as follows:

Line of Business Claims
2001
$Mil
Claims
2000
$Mil
%
Change
Products Liability-Claims Made 213.6 0.9 23,325.1
Earthquake 875.0 171.8 409.3
Products Liability-Occurrence 2,842.8 971.6 192.6
Medical Malpractice-Claims Made 5,789.2 2,799.5 106.8
Homeowners 44,862.3 21,874.8 105.1
Other Accident and Health 5,205.2 2,639.4 97.2
Aircraft 1,425.4 742.2 92.1
Personal Auto 89,861.3 51,045.3 76.0
Workers' Compensation 30,563.5 17,553.5 74.1
Auto Physical Damage 64,713.1 37,665.3 71.8
Commercial Auto 16,859.8 10,300.3 63.7
Commercial Multiple Peril 22,051.1 12,693.5 73.7
Group Accident 10,520.2 8,252.9 27.5
Credit Accident and Health 77.8 62.9 23.6
Medical Malpractice-Occurrence 1,928.9 1,811.5 6.5

"The industry was hit hard by the staggering claims from the terrorist attacks," said Martin D. Weiss, Ph.D., chairman of Weiss Ratings, Inc. "It would be a mistake, however, to blame all of the industry's troubles on September 11. The economic malaise, the rash of corporate bankruptcies, and the market downturn have also taken their toll."

Although the losses were very large, they were concentrated among 905 insurers, a mere 34.1 percent of the 2,653 companies analyzed. Moreover, just three large insurers, each suffering losses in excess of $1 billion, accounted for an unusually large 59 percent of the total $9 billion in red ink. The three companies reporting the largest losses for the year were:

Company Domicile
State
Net Loss
($Mil)
Weiss
Safety
Rating

State Farm Mutual Auto Ins Co Ill. 2,646.1 A-
General Reinsurance Corp Del. 1,402.4 B-
State Farm Fire and Casualty Co Ill. 1,261.3 B

Weiss Safety Rating: A=Excellent; B=Good; C=Fair; D=Weak; E=Very Weak

"Investment income and capital gains typically help offset losses from claims, but market declines eliminated that cushion in 2001," said Dr. Weiss. "Policyholders have already felt the sting of rate increases and should expect more on the horizon."

Junk Bond Holdings Climb

Junk bond holdings by property and casualty insurers surged by $13.2 billion, or 92 percent, from $14.4 billion at year-end 2000 to $27.6 billion at the end of 2001. Moreover, the most speculative segment of the industry's junk bond holdings - Classes 5 and 6 - rose to record levels. Holdings in class 5 bonds, those with ratings equivalent to CCC, CC, and C by a major bond rating agency, jumped 101 percent from $1.1 billion in 2000 to $2.3 billion in 2001. Worst of all, Class 6 bonds holdings, defined as in or near default, soared 475 percent from $317 million to $1.8 billion during the same period.

"Some companies deliberately stepped up their purchases of junk bonds, but in most cases, they simply got caught with bonds that suffered downgrades or went into default in 2001," commented Dr. Weiss. "And the junk bond default rate continues to rise in 2002."

Notable Upgrades and Downgrades

Among the 2,653 property and casualty insurers reviewed by Weiss using year-end 2001 data, 89 were upgraded, while 325 were downgraded. Notable upgrades include:

Allstate Ins. Co., Ill. from B+ to A-
Dairyland Ins. Co, Wis. from B+ to A-
Travelers Indemnity Co., Conn. from B- to B

Notable downgrades include:

Liberty Mutual Ins Co., Mass. from B+ to B
State Farm Mutual Auto. Ins. Co., Ill. from A to A-
St. Paul Fire and Marine, Minn. from B+ to B

The Weiss Safety Ratings are based on an analysis of a company's risk-adjusted capital, reserve adequacy, profitability, 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 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 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 at www.WeissRatings.com, or starting at $15 by calling 800-289 9222.


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