D&P: CONFEDERATION LIFE INSURANCE COMPANY, CONFEDERATION LIFE INSURANCE AND ANNUITY COMPANY CLAIMS PAYING ABILITY RATINGS LOWERED TO 'AA'
CHICAGO, July 16 /PRNewswire/ -- Duff & Phelps Credit Rating Co. has lowered the claims paying ability ratings of Confederation Life Insurance Company (CLIC) and its wholly owned U.S. subsidiary, Confederation Life Insurance and Annuity Company (CLIAC), from `AA+' (Double-A-Plus) to `AA' (Double-A). The very high claims paying ability rating of 'AA' is supported by the strong market positions of the majority of the company's business units, the orientation of revenues toward fee-based products which now account for about one-half of total premiums and equivalents, the benefits of geographic and market diversification, the strong underwriting skills within its insurance and investment operations, and the very stable nature of its liabilities. The lower ratings reflect a rise in operating leverage; a high, although recently declining level of underperforming assets; the persistence of earnings weakness due to asset loss provisioning and lost investment income on non-performing assets; and the company's continuing high level of debt financing relative to its adjusted surplus. Recent actions by the company have been stabilizing these negative trends and include: extension of debt maturities; a modest reduction in overall debt outstanding and plans to increase Tier I capital; some further reduction in mortgage asset exposure; improved asset risk monitoring and control measures; pricing adjustments; and an increased emphasis to reduce expense levels, including a rationalization of its Canadian individual insurance distribution system. CLIC's consolidated operations (including Canadian, U.S. and U.K. subsidiary operations) had total assets under administration of C$29.6 billion at year end 1992. Adjusted surplus at Dec. 31, 1992 was C$1,138 million. During 1992, CLIC's consolidated net income was C$2 million, however, this result included a C$85 million asset loss charge, primarily related to writedowns of non-performing commercial mortgages. Excluding asset loss charges and the effect of lower investment income due to higher levels of underperforming assets, CLIC's consolidated earnings during 1992 totaled C$163 million, down from C$209 million in 1991. Duff & Phelps expects CLIC's future consolidated earnings to be somewhat constrained due to continuing lower investment income. Additional asset loss provisioning is expected over the next several years, however, the annual level of provisions for non-performing mortgage loans and real estate are expected to have peaked, barring further material deterioration in real estate markets and one-time special situations. Consolidated operating leverage (adjusted liabilities to adjusted surplus) was 14.8 times at the end of 1992. This figure increased from year end 1991 operating leverage of approximately 12.9 times. Consolidated debt financing to adjusted surplus also increased during 1992 and is estimated to have peaked at the end of the first quarter of 1993 at approximately 1.8 times (versus 1.65 times at the end of 1991). -0- 7/16/93 /CONTACT: Kevin A. Ceurvorst, CFA of Duff & Phelps Credit Rating Co., 312-368-3144/ CO: Confederation Life Insurance Company ST: IN: INS SU: RTG
WB -- NY021 -- 2430 07/16/93 11:41 EDT
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|Date:||Jul 16, 1993|
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