Weiss: P-C Failures Increased In 2001

"Such a large chunk from one company is a little bit of a surprise," said Melissa Gannon, Weiss vice president. Aside from that, she said, the failure rate for p-c companies is "pretty consistent with the prior year."

"Next year, if the recession continues, I would expect at least as many [failures] if not more," she said.

Ms. Gannon said key factors would be whether insurers can properly price and make decent profits on commercial liability insurance, and on whether they are forced to offer coverage without a terrorism exclusion in key markets and whether the government will arrange to subsidize losses.

If no major terrorism events were to occur, she said, "then everything would work out just fine. But, if something were to happen it could be very damaging to the industry."

Among life and health insurers, Weiss said there were six failures compared with seven in 2000.

In view of the recession, the total of 40 life and health and p-c insurers failing was "a modest 5 percent increase," Weiss said.

The analysts noted that the p-c segment represented a disproportionate number of failures.

Weiss also looked at bank failures, which the company found had decreased by 43 percent (from seven to four) in the same period. Among Health Maintenance Organizations, it reported that failures declined steeply–going from 19 in 2000 to eight last year.

"The property and casualty insurers are the weakest right now. We saw p-c failures start to climb in 2000, and that trend has not changed," commented Martin D. Weiss, chairman of Weiss Ratings.

Mr. Weiss said the HMO industry appears to be stabilizing as companies return to profitability. "And, despite an overall weakening in the banking industry, banks and thrifts are still generally well-capitalized thanks to the last 10 years of strong earnings," added.

Among the 48 HMOs and insurance companies that failed in 2001, Weiss said it had issued financial safety ratings on 36, with 92 percent of those rated "Weak" or lower. The remaining 8 percent had been rated "Fair."

The largest failed companies were:

? Reliance Insurance Company, which failed on Jan. 29, 2001 with some $6.07 billion in assets, rated E (very weak) by Weiss.

? PHICO Insurance Company, which failed on Aug. 16, 2001 with $727 million in asses, and with a (weak) D-minus Weiss rating.

? Frontier Insurance Company, which failed on Aug. 24, 2001 with $469 million in assets and a "very weak" Weiss rating.

? Reliance National Indemnity Company, which folded on Jan. 29, 2001, with $311 million in assets, rated "very weak."

? United Capitol, which failed on Sept. 12, 2001, with $197 million in assets, rated "weak."

"What's not yet apparent in the failure statistics is the earnings weakness in each of the financial sectors,"' Mr. Weiss said. "Compared to this time last year, profits are down at more than half of all banks and insurance companies, indicating a need for caution ahead."

To avoid future failures, Mr. Weiss said he was advising businesses and consumers to monitor the financial health of their HMO, insurance company, or bank using safety ratings with a solid track record for accuracy.

Weiss, which bills itself as "America's consumer advocate," issues safety ratings on more than 15,000 financial institutions, including life and health insurers, HMOs, Blue Cross Blue Shield plans, property-casualty insurers, banks, and brokers. Weiss also issues investment ratings on more than 11,000 mutual funds and 9,000 common stocks.

The Weiss Ratings Web site is at www.WeissRatings.com