DUFF & PHELPS: PAN-AMERICAN LIFE INSURANCE COMPANY CLAIMS PAYING ABILITY RATED 'AA-'
CHICAGO, July 19 /PRNewswire/ -- Duff & Phelps Credit Rating Co. has rated the claims paying ability of Pan-American Life Insurance Company (PALIC), `AA-' (Double-A-Minus). The rating reflects the company's high quality bond portfolio, conservative operating leverage, and strong small group life and health insurance business line. Weighed against these positives are PALIC's mortgage and real estate exposure, and low profitability in other lines of business. PALIC is a mutual life insurer based in New Orleans, Louisiana with total admitted assets of $2.0 billion and adjusted surplus of $205 million at March 31, 1993. The company was originally incorporated in 1911 as a stock company to sell life insurance in Latin America. PALIC currently has five operating profit centers; National Insurance Services (small group), U.S. Individual, International, Group Life and Health, and Pension. National Insurance Services (NIS) is a wholly-owned subsidiary of PALIC and has been the primary profit generator over the last several years. The Tampa-based company was founded in 1982 and acquired by PALIC in 1986. NIS markets and administers Multiple Employer Trust life and health insurance plans for groups with under 50 employees. Net operating results went from break-even in 1987 to a gain of $26 million in 1992. This represented 119 percent of PALIC's 1992 net operating gain. PALIC expects these high profit levels to decline as the health insurance cycle turns downward. Furthermore, the prospect of national health care reform increases the uncertainty of future results. U.S. Individual operations market a portfolio of individual life and disability insurance and annuity products. PALIC markets these products to the advanced market (professionals, estate planning, and small to medium-sized businesses). In 1985, the company began aggressively marketing to a sub-set of this market, affluent Latin Americans. The company's long-standing reputation in Latin America serves as a competitive advantage in this market. In 1992, sales to Hispanics represented 44 percent of total U.S. sales. PALIC has maintained operations in Latin America for 81 years and is the dominant U.S. insurer in that market. PALIC's Group Life and Health insurance business markets a wide variety of administrative, financial, and health management services to corporate clients with 30 to 5,000 employees. The Pension department is focusing on full service, defined contribution plans such as 401K, profit sharing, and money purchase. Throughout the 1980's, the company wrote a substantial amount of guaranteed investment contracts (GICs). The company was successful with this product line, but is writing significantly less volume due to the adverse market environment. Net operating gain was $22 million in 1992 with income from NIS and Group Life and Health more than offsetting losses from Pension, U.S. Individual, and International. The Group Health combined ratio was an excellent 87.7 percent in 1992 and has averaged a healthy 95.7 percent over the most recent five years. PALIC's operating leverage has declined in recent years as the company grew surplus and slowed sales of GICs. Adjusted liabilities to adjusted surplus was 8.45 times at March 31, 1993, versus 13.80 times at year-end 1988. Bond investments represented 76 percent of total invested assets at December 31, 1992. Below investment grade securities made up 9 percent of the bond portfolio at year-end 1992. This translated into a surplus exposure of 68 percent. Mortgage loans represented 9 percent of total invested assets at year-end 1992. More than half of the mortgage portfolio was invested in Louisiana (29 percent) and Texas (27 percent). Therefore, PALIC experienced real estate problems earlier than the life insurance industry generally. PALIC's delinquent loans represented 4.20 percent of total mortgages at yearend 1992, a four year low. The company has a large portfolio of modified loans, 13.58 percent of total mortgages. However, these loans are earning a respectable yield of 9.82 percent. Cash and equivalents represented 5 percent and policy loans made up another 5 percent of total invested assets at December 31, 1992. Foreclosed real estate, equity securities, affiliated investments, and other invested assets comprised 1 percent each of the asset portfolio. The company has a two-thirds joint venture with Inter-Continental Hotels in a property adjacent to PALIC's home office building in Downtown New Orleans. PALIC has guaranteed its portion, $13.3 million, of the mortgage loan held by two local banks. -0- 7/19/93 /CONTACT: Julie A. Burke, CPA, of Duff & Phelps Credit Rating Co., 312-368-3158/
CO: Pan-American Life Insurance Company ST: IN: INS SU: RTG
MG -- NY058 -- 3082 07/19/93 13:07 EDT
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|Date:||Jul 19, 1993|
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