Weiss Ratings, Inc. A View of the Life and Health Insurance Industry.
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Transcript of Weiss Ratings, Inc. A View of the Life and Health Insurance Industry.
Weiss Ratings, Inc.
A View of the Life and Health Insurance Industry
Who is Weiss Ratings?
How Does Weiss Rate Life and Health Insurers?
How Rating Agencies Differ
The State of the L&H Insurance Industry
L&H on the Horizon
The Weiss Ratings Philosophy
Develops ratings from the viewpoint of the consumerAccepts no compensation from the companies for issuing ratingsProvides companies no advance preview of ratingDoes not give companies the right to suppress publication of rating
Rating Methodology
CapitalizationRisk-Adjusted Capital
The amount of capital an insurer should have based on the risks it takes with its asset portfolio, underwriting practices,
credit arrangements, and general business activity
Rating Methodology
ProfitabilityMeasures insurer’s ability to generate sufficient income to
cover its expenses and contribute to its capital base.
Primary Factors:Impact of operating results on surplusConsistency of operating resultsGain or loss on operations by lines of businessExpenses in relation to industry averagesAdequacy of investment income
Rating Methodology
Investment Safety
Measures the exposure of an insurer’s investment portfolio to a loss of principal and/or income
due to default and market risks.
Primarily measures exposure to:
Bond and mortgage defaults
Market value declines
Changes in interest rates
Rating Methodology
Liquidity
Scenario testing, if claims experience in the coming year is as bad as the worst single year’s experience, in the last five, would the insurer have sufficient cash flow to
cover claims?
Rating Methodology
StabilityMeasures factors that affect consistency (or the lack thereof) in
maintaining financial strength over time.
Primary factors:Relationship with holding companies and affiliates and potential impact on financial healthPrior capitalization and liquidity test resultsRisk diversificationCash flow historyGrowth in premiums or assets that exceed industry normsSubstantial shifts in the insurer’s operationsDeterioration of operations as reported in critical asset, liability, income, or expense items
Comparison of Insurance Company Rating Agency Scales
Weiss Best S&P Moody’s D&P
A+,A,A- A++,A+ AAA Aaa AAA
B+,B,B- A,A- AA+,AA,AA- Aa1,Aa2,Aa3 AA+,AA,AA-
C+,C,C- B++,B+ A+,A,A-
BBB+,BBB,BBB-
A1,A2,A3
Baa1,Baa2,Baa3
A+,A,A-
BBB+,BBB,BBB-
D+,D,D- B,B-
C++,C+,C,C-
BB+,BB,BB-
B+,B,B-
Ba1,Ba2,Ba3
B1,B2,B3
BB+,BB,BB-
B+,B, B-
E+,E,E-
F
D
E,F
CCC
R
Caa,Ca,C CCC+,CCC,CCC-
DD
Source: U.S. General Accounting Office
Weiss and Best Rating Distributions
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Band 1 Band 2 Band 3 Band 4 Band 5
WeissBest
Industry Trend in Profitability for
L&H Insurers ($Billions)
0
5
10
15
20
25
30
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
L&H Company Failures
0
5
10
15
20
25
30
35
40
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003YTD
Weiss L&H Rating Distribution
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
A B C D E
19902003
On the Horizon
Challenges of developing products to meet the needs of the retiring baby boomers
Affect of improving mortality rates on annuity pricing
Investors burned by the market seeking safer products but still want to profit on the upside
Well-capitalized industry poised to take advantage of a rebounding economy