Lingering Losses on Bonds are Haunting Insurers
New York Times
June 15, 2003


TIn the wake of multibillion-dollar accounting scandals in American business, companies are under heightened pressure to make sure that their financial results do not paint a misleadingly rosy picture.

That pressure figures to be especially intense on the insurance industry.

Insurers are swimming in billions of dollars of losses on corporate bonds that they bought years ago, but whose value has since plummeted. With the leeway afforded by vague accounting rules, many insurers are still carrying these securities on their books as if nothing had happened. An effect is the deceptive appearance of financial strength.

Now federal regulators are suggesting that tighter rules may be required on how companies value distressed securities. A tightening could push life insurers, in particular, into a financial squeeze, requiring them to borrow billions of dollars or issue shares to maintain capital requirements.

…

Investment problems may have already led some insurers to raise premiums. Several studies by Americans for Insurance Reform, a coalition of consumer groups, have concluded that poor investment performance, not greater claims and settlements are the major reason for skyrocketing malpractice premiums. In Colorado, a study by the group found that payouts on medical malpractice claims actually declined even as malpractice premiums rose roughly 30 percent from 1998 to 2001.

Martin Weiss, chairman of Weiss Ratings, which rates the financial strength of insurers, also sees rising premiums as an effect of poor investments.

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