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August 26, 2002 at 08:00 PM
NU Online News Service, Aug. 26, 8:20 p.m. – U.S. life insurers suffered from declining capital adequacy levels in 2001 even though their risk-based capital ratios went up, according to a new report by a team led by Robert Blanchard, an analyst at Moody’s Investors Service, New York.
The National Association of Insurance Commissioners, Kansas City, Mo., developed the RBC ratio reporting system to give the insurance industry a standardized, easy-to-understand measure for gauging an insurer’s financial health. Insurers come up with RBC figures by dividing their “total adjusted capital,” or equity capital, by their “risk-weighted capital.”
Blanchard’s team looked at insurers’ capital another way, by dividing statutory capital by general account assets.
Because of realized and unrealized investment losses, and big dividend payments to shareholders, the ratio of statutory capital to general account assets fell to 10.4% in 2001, from 11.8% in 2000, the Moody’s analysts write.
When the analysts divided statutory capital by policyholder liabilities, they found the policyholder liability ratio fell to 12.9%, from 14.3%.
Another measure of economic capital adequacy, the ratio of assets that carry investment risk to capital, is also deteriorating, the analysts write.
The ratio increased to close to 200% in 2001, from less than 190% from 1997 to 2000.
