In the face of a slowing economy and stiff competition, 35 insurance companies failed in 2000, a 30 percent increase over the 27 failures recorded in 1999, according to Weiss Ratings, Inc., an independent provider of ratings and analyses on the insurance industry.
“Increasing financial weakness in the property/casualty sector of the industry was the driving force behind the large jump in insurer failures. And there’s bound to be more bloodletting in this sector as the weaker companies are further pounded by a slowing economy,” said Martin D. Weiss, chairman of Weiss Ratings. Property/casualty insurers represented a disproportionate 27 of the 35 insurance company failures last year.
All told, there were 53 insurance company and HMO failures in 2000. Among these, Weiss had issued financial safety ratings on 47, giving 72 percent of those rated a grade of D+ (“Weak”) or lower. Weiss had rated the remaining 28 percent in the C (“Fair”) range. The largest failed companies were: Fremont Indemnity Company, Harvard Pilgrim Health Care Inc., Fremont Industrial Indemnity Co., Fremont Casualty Ins. Co. and California Compensation Insurance Co.
To avoid failures such as these, Weiss advised businesses and consumers to monitor the financial health of their insurance company by using safety ratings with a solid track record for accuracy. The Weiss ratings are based on an analysis of a company’s capital, profitability, reserve adequacy, quality of investments, liquidity, and stability.
Weiss issues safety ratings on over 16,000 financial institutions, including life and health insurers, property and casualty insurers, HMOs, Blue Cross Blue Shield plans, banks, and securities brokers. Weiss also rates the risk-adjusted performance of more than 10,000 mutual funds.
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