At Least 49 Life and Health Insurers Have More Junk Bonds Than Capital, Increasing Vulnerability to Plunge in Junk Bond Prices, Reports Weiss Ratings
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MONDAY, NOVEMBER 20, 2000 8:09:00 AM EST
PALM BEACH GARDENS, Fla., Nov 20, 2000 (BW HealthWire) -- At least 49 life and health insurers whose junk bond holdings exceeded capital at June 30 are vulnerable to the sharp decline in junk bond prices which began in September of this year, according to a recent study by Weiss Ratings, Inc., the only independent provider of insurance company ratings and analyses.
Insurance companies reporting the largest percentage of junk bonds in relation to capital include:
Weiss Junk Junk
Safety Bonds Capital Bonds
Rating $(Mil) $(Mil) Capital
-- Il Annuity & Insurance
Company (Mass.) C 211.9 40.2 527%
-- Capitol Life Insurance
Co. (Colo.) D 51.3 13.7 375%
-- Conseco Direct Life
Insurance Co. (Penn.) D+ 88.7 29.6 299%
-- Fidelity & Guaranty Life
Insurance Co. (Md.) C 536.3 185.2 290%
Weiss Safety Rating: A = Excellent; B = Good; C = Fair; D = Weak; E =
Very Weak
"A high exposure to junk bonds today could have a negative impact down the road on the safety of fixed annuities and whole life policies held by hundreds of thousands of consumers. Although the current decline in the junk bond market does not have an immediate impact on an insurer's financials, since the company can continue to hold the bonds and avoid realizing losses, it could be an advance warning of higher default rates on junk bonds in the future which would have a significant impact on the profits and capital of these insurers," said Martin D. Weiss, Ph.D., chairman of Weiss Ratings.
Overall, the 49 companies hold $41.4 billion in junk bonds, or over 43% of the $95.4 billion held by all 1,095 life insurers reviewed by Weiss. And on average, the 49 companies have $1.20 invested in junk bonds for every dollar of capital, as compared to $0.48 industry-wide.
Weiss does not consider all insurers holding junk bonds as financially weak. Some companies have other offsetting strengths, such as high capital levels or strong stable profits, that can help them avert future financial difficulties and protect the consumer's safety. Therefore, Weiss advises that consumers review both (a) the company's exposure to junk bonds, and (b) the company's Weiss Safety Rating which takes these other factors into account.
Profits Up Moderately
The nation's life and health insurers reported operating profits of $23.1 billion during the first half of 2000, representing a $1.2 billion, or 5.3%, increase over the $21.9 billion recorded in the first half of 1999. Likewise, the industry's bottom line net profit increased to $12.8 billion in the first half of 2000, up $831 million, or 6.9%, compared to the $12.0 billion profit recorded in the first half of 1999.
Notable Upgrades and Downgrades
Among the life, health, and annuity insurers recently reviewed by Weiss, six received upgrades, while 13 were downgraded. Notable upgrades include:
-- Phoenix Home Life Mutual Insurance Co. (N.Y.) from B- to B
-- North Central Life Insurance Co. (Minn.) from C+ to B-
-- Funeral Directors Life Insurance Co. (Texas) from D+ to C-
-- Notable downgrades include:
-- American Community Mutual Insurance Co. (Mich.) from C- to D
-- American Heritage Life Insurance Co. (Fla.) from A- to B+
-- Conseco Direct Life Insurance Co. (Penn.) from C- to D+
-- Conseco Annuity Assurance Co. (Ill.) from C to C-
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.
Note to editors: Tables available from Weiss Ratings include a) the 49 insurers with junk bond holdings exceeding capital, and b) national and state listings of strongest and weakest life, health, and annuity insurers.
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