Affirms 'Bpi' FSR on Central Reserve Life Ins Co.

Business Editors

NEW YORK--(BUSINESS WIRE)--Standard & Poor's

Sept. 18, 2000--Standard & Poor's today affirmed its single-'Bpi' financial strength rating on Central Reserve Life Insurance Co. (Central Reserve).

Key rating factors include marginal capitalization, poor and volatile earnings, and a low two-year average ratio of cash inflows to cash outflows.

Based in Strongsville, Ohio, this company writes mainly group accident and health insurance. Approximately two-thirds of the company's business lies within its major states of operations: Ohio, Indiana, North Carolina, Kansas, and South Carolina. Central Reserve distributes its products through independent agents and various E-commerce platforms.

In December 1998, the company purchased all the common stock of Provident American Life & Health Insurance Co. (financial strength rating double-'Bpi') from Provident American Corp. (Nasdaq:PAMC). Central Reserve is a subsidiary of Central Reserve Life Corp. (Nasdaq:CRLC), which is owned by insurance holding company Ceres Group, Inc. (Nasdaq:CERG). The company, which began operations in 1965, is licensed in 36 states.

Major Rating Factors:

-- Capitalization is marginal, as indicated by a Standard & Poor's capital
adequacy ratio of 53.7%. Total adjusted capital was $23.4 million at year-end
1999 versus $30.7 million in 1998, a decrease of 23.8%. The decline in surplus
of $7.3 million from 1998 was caused by an increase in net unrealized capital
losses of $4.4 million, a loss of $2.0 million in net income, and a negative
$1.0 million change in non-admitted assets.

-- Profitability is poor. The company's time-weighted return on assets is
negative 6.4%. A gain in net income of $19.2 million in 1999 over 1998 was due
to improved results for group accident and health, which had a $17.1 million
increase from 1998 in pretax income before dividends to policyholders.

-- The company's historical return on assets displays high volatility, which,
together with a low two-year average ratio of cash inflows to cash outflows
(96%), is a rating factor. Since 1994, returns have varied from negative 21.9%
to positive 5.6%.

-- The company's geographic diversification is good, with only 29% of direct
business in its largest state (Ohio). However, the company has high
product-line concentration, with more than 95% of its direct business in group
accident and health related lines.

Although the company (NAIC:61727) is a member of the Ceres Group Inc., the rating does not benefit from any implied group support.

'pi' ratings, denoted with a 'pi' subscript, are insurer financial strength ratings based on an analysis of an insurer's published financial information and additional information in the public domain. They do not reflect in-depth meetings with an insurer's management and are therefore based on less comprehensive information than ratings without a 'pi' subscript. 'pi' ratings are reviewed annually based on a new year's financial statements, but may be reviewed on an interim basis if a major event that may affect the insurer's financial security occurs. Ratings with a 'pi' subscript are not subject to potential CreditWatch listings.

Ratings with a 'pi' subscript generally are not modified with 'plus' or 'minus' designations. However, such designations may be assigned when the insurer's financial strength rating is constrained by sovereign risk or the credit quality of a parent company or affiliated group, Standard & Poor's said. --CreditWire