U.S. life insurers ended 2001 with less capital even though their official risk-based capital ratios rose.
Analysts from Moodys Investors Service, New York, draw that conclusion in a report on the effects of recent changes in the rules for calculating risk-based capital ratios.
The National Association of Insurance Commissioners, Kansas City, Mo., came up with the RBC ratio to create a standard yardstick for measuring insurers financial health.
Insurers calculate the ratios by dividing total adjusted capital by risk-weighted capital. Insurers get more credit for low-risk investments, such as U.S. Treasury bonds, than for investments in real estate, common stock and low-grade corporate bonds.
The Moodys team set the RBC rules aside and measured insurers capital adequacy by dividing statutory capital by general account assets. Because of investment losses and dividend payments, the ratio of statutory capital to general account assets fell to 10.4% in 2001, from 11.8% in 2000.
When the analysts divided statutory capital by policyholder liabilities, they found the policyholder liability ratio fell to 12.9%, from 14.3%.
“We still feel the industry is more than adequately capitalized,” says Robert Riegel, a Moodys analyst who helped work on the capital adequacy report. “Were just concerned about the trend.”