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Most Insurers Are Financially Secure, New Survey Shows Graphic

November 6, 1991

NEW YORK (AP) _ A fresh review of nearly 2,600 insurance companies - many scrutinized for the first time - revealed Wednesday that the vast majority remains financially secure despite the industry’s much-publicized problems with investments in risky junk bonds and bad mortgages.

Standard & Poor’s Corp., a leading rating agency, said its broad-ranging review came in response to growing concern over the financial health of the industry.

Such concern, non-existent several years ago, erupted following the seizure of several major insurance companies and eroding public confidence in the industry as a whole.

Despite the fact that S&P judged companies responsible for 87 percent of some $457 billion in U.S. insurance premiums to be ″adequate or better″ in terms of financial health, more than 500 companies appear vulnerable. Those companies account for only about 3 precent of the premiums written, or about $7 billion in premiums.

The remaining 10 percent of premiums were placed with companies whose finanical strength was assessed as adequate.

S&P uses sophisticated models that weigh profitability, liquidity, cash flow and asset quality, among other factors, to determine where a company fits on its rating scale.

″A significant number of companies are facing-asset quality problems, and the potential for losses results from the possible loss of confidence,″ said Roy Taub, executive managing director of insurance rating services, at a press briefing at the firm’s downtown Manhattan headquarters.

Major insurance companies in California, New Jersey and New York were seized earlier this year after large numbers of consumers ran to cash in their policies. Since then, pressure has been mounting for advance warning of the difficulties insurers face, which frequently stem from portfolios ladened with junk bonds and non-performing mortgages.

″Holding the confidence of customers is the key to longevity,″ Taub said.

S&P said it downgraded 23 insurers this year, while it upgraded only one. Among companies to see their ratings decline were such household-names as Aetna Life & Casualty Co.and Lincoln National Life Insurance Co.

Despite what Taub called the ″heavy imbalance″ of downgrades overwhelming upgrades, he said the overall strength of the industry remains intact.

For the most part, the downgradings were minor adjustments, and no companies fell below investment grade. Still, sliding ratings may frighten away potential policyholders.

Last month Moody’s Investor Service, another major rating agency, said it anticipates further downgradings of some insurers as well as ″a greater disparity in credit risks between stronger and weaker carriers.″ But Moody’s also said the industry as a whole is unlikely to fall below an average level of financial strength.

The American Council of Life Insurance, an industry trade group, has argued that many ratings adjustments were the result of the rater’s view of the economy’s performance, and many downgradings reflect more stringent standards, not necessarily a general erosion of an insurer’s financial strength.

Most of S&P’s ratings were ″qualified″ in that they were based solely on public financial data, which typically is made available once a year, rather than on additional information provided by individiual companies.

Among life-health insurers, S&P issued ″qualified″ opinions for 746 companies, or 79 percent of those reviewed.

Companies receiving qualified ratings do not pay S&P’s fee - which ranges from $15,000 to $28,000 a year - for a more thorough look, including visits with management and ongoing assessments of a company’s investment portfolio.

On the property-casualty side, which does not have the severity of problems facing life-health insurers, 1,229 companies, or 75 percent, received qualified solvency ratings.

S&P’s findings are recorded in its two-volume ″Insurer Solvency Review,″ which was first published in April using 1989 data. The volumes that became available Wednesday - at a cost of $75 a piece - are based on 1990 data.

The review most likely will be used by insurance agents but is available to the general public.

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EDITOR’S NOTE - Consumers can receive S&P’s ratings on up to five insurance companies by calling 212 208-1527. There is no charge.

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