Page 49 article text (OCR)
o)n Amcx stocksLE-8 Mutual fundsE-8 NYSE listE-4 NASDAQ stocksE-6 Q) Mark Braykovich A A A I j iviuney Ward's 50 m amJ 1 : -, V ,- , If- i I .v ; ;- 'x Mlf,fp - . a benchmark for insurers Even amid scare headlines and doom-n-gloom forecasts such as those that have befallen the life insurance industrv in recent months you usually can find a Mr. Positive. He's the suv savinc cood thines while others around him are running for cover. Or, in the case of the insurance industry, he chooses to look at what insurers are dninc well when evervone else is moaning about bailouts and gov The Cincinnati EnquirerTony Jones LEFT: LARRY PIKE, chairman of Union Central Life Insurance Co. ABOVE: DAVID RANDALL, deputy director of the AU! nni n Inn tmrrr ernment seizures. '. Such was the mission of this season's i f RIGHT: WILLIAM J. WILLIAMS, chairman of Western T Mr. Positive: John L. Ward, chief executive officer of Ward Financial Group, a Cincinnati firm that advises insurers and other financial r g- - - & Southern Life Insurance. services firms. "Some of the neca tive press the industrv is eettinc is de Insurers say industry not ailin served, but most of it is not," he said. I wanted to find out what's right about the ing the industry is something that we need f. f . . . . Mil The followine roundtable discussion industrv. ROUNDTABLE was conducted bv Enauirer business writ In doing so, Ward er and Money columnist Mark Braykovich. has: QUESTION: The financial prob John L. Ward Devised a new lems of the life insurance industry today's Enquirer Business Roundtable with Larry Pike, chairman of Union Central annrnach to analvzine insurers that is The financial health of the insurance industry has been called into question in recent months after r i more thorough and perhaps more accu have focused much attention mnatlv negative on insurance rate than those employed by tne well known ratines aeencies. companies investing in the likes of junk bonds and real estate, ana oiier-ing products such as guaranteed investment contracts. Are the concerns Provided insurers with a useful measuring stick to help them improve and better comoete. Life Insurance several major Given consumers another voice to failures and runs on comoanies Co.. David Randall, deputy about the insurance industry s financial health overstated? Or should nnvthinc be done to further limit listen to in nicking insurers. So the insurance industry loves him, ripht? Actuallv. no. those investments and some of the types of products insurers now offer.' by policyholders. Is the director of the Ohio Dept. of industry in trouble, or just Insurance, and William J. shaking out weak players? Williams, chairman of Western That question is the focus of & Southern Life Insurance. " He has already taken his share of criticism over his Ward's Too 50. a list PIKE: "I believe that, on an overall basis for the industry, that the concerns to continually take a look at and to re-examine in terms of the investment statutes that we have on the books in the state." What can the industry do to overcome all of the negative publicity it's been getting in the last several months? WILLIAMS: "Well the main thing is that, through their associations, to try to get good publicity, good promotion as far as the business goes. Companies themselves can do a lot. "We just recently wrote every one of our policyholders, and we have around 3 million . . . explaining the situation at Western & Southern, of our condition, and we explained our balance sheet to them and made it very clear that we felt that their contract was going to be fully fulfilled by Western & Southern." Nervous consumers are paying a lot of attention right now to services that rate the health of insurers, such as A.M. Best, Standard & Poor's, and the controversial Weiss Research. Yet insurers and consumers have problems with some of the ratings. Who should consumers listen to? WILLIAMS: "I think ratings mean a lot. And you have got to remember, an insurance company can change quickly, faster than a manufacturing company because of its type of investments. You might have a $60 million mortgage and the main (Please see INSURANCE, Page E-2) of the industry's elite when it comes to safptv and nerformance. The list ap and the fears are overstated, it you would look at the total asset base of the compa peared last month in two issues of Na tional Underwriter magazine. Ton insurance executives have called him at home to complain about their firms nnt makine the list. Others don't nies that have gotten themselves into difficulty because of one or other of these investments, and you would add them all together, they would probably represent 2 to 3 of the total assets in the industry. understand his methodology. And some contend Ward is promoting a run-on- the-bank mentality. "A rnmnanv that would have 50 to V "The whole insurance industry is and that type of thing, and they have kept their portfolios pretty clean. "It's unfortunate that this industry is being tarnished the way it is really, because it's not in that kind of condition." RANDALL: "Certainly consumer confidence is jittery right now in terms of the industry. I think that in Ohio we've got a strong record of professional regulations, we've had strong investment statutes that place limitations on the asset holdings of companies in the state. And Ohio has had a long tradition of placing limitations on portfolios. "I think that as far as the future is concerned, from our perspective, regulat we have only real estate that we use for our own operations. And our mortgages we have less than 20 in what we would consider well-underwritten, well-selected types of mortgages." WILLIAMS: "I would say that, unfortunately, the press has pushed the bad parts instead of stressing some good parts of the insurance industry. Really there's only three major companies that got into trouble so far. "I do think it's been overstated and that the insurance industries overall are in very good condition because most of the insurers have not fallen into those traps, of the junk bonds, the joint ventures, real estate 60 in junk bonds, or 50 to 60 in real estate and mortgages, I believe has been nrettv naranoid rieht now." said Ward imprudent and has not properly protected the clients that thev have been selling "But people need to understand that to not make the Ward's Top 50 is not a slam." their contracts to. Most of the companies are well, well below these percentages ; Of course, Ward admitted that an insurer's goal should be "to get on the list." And that isn't easv. that have been written about. "Our own comDanv would have in junk For beginners, of the nation's roughly bonds about 3 of our bond portfolio. And 2,000 life and health insurers, only JUU Federal regulation considered The federal government has no role in regulating passed an initial screening tor satety. (Ward won't say which 300). His safety tests are tougher than those used by state regulators and rating agencies, especially on how much capital insurers must have to back up investments in junk bonds and mortgage loans. Once an insurer passes the safety screening, it is on to several tests of performance. And this is where Ward's so-called Results by Outstanding Insurers diverges from the rest of the pack. "The reason why ratings are totally worthless is that they are all looking at safety," Ward said. "They don't realize that you have to be safe and efficient." His message: Insurers can be safe, but lousy performers. Or conversely, a . solid performer can be very unsafe. Companies paying price for risky investments By ANNE SAKER Gannett News Service What happened to tarnish the reputation of the insurance industry a business that has offered Americans a piece of the rock, the knowledge of being in good hands or the comfort of a security blanket? The answer is simple: "The insurance industry got to where it is the same way the banks and the S&Ls did a weak economy as the result of a debt binge," said Jane D' Arista, associate director at the Morin Center for Banking Law Studies at Boston University. While the vast majority of the nation's 2,000-plus carriers are healthy, a new Gannett News Service-USA TODAY study finds that almost 100 are in financial difficulty. State regulators have moved this year to take control of 34 companies in weakened financial condition. The trouble started, industry watchers said, in the late 1970s, when interest rates scaled double-digit heights at times approaching 18. In addition, the federal government freed banks and S&Ls in the early 1980s to sell (Please see PROBLEMS, Page E-7) BY ANNE SAKER Gannett News Service Few notions make the insurance industry more combative than the possibility that Congress could take away its exemption from antitrust laws and create a federal agency to watch over the $1.25 trillion business. "We only have to point to the job that was done with the banks, the savings and loans, the airlines and the railroads to see what kind of job the federal government does when it comes to regulating business," said Gene Grabowski, spokesman for the American Council of Life Insurance, an industry lobby. But in light of the collapse of Executive Life of California, the state takeover of Mutual Benefit of New Jersey and the failure of at least 32 other insurers this year, lawmakers are considering a significant change in the way government oversees the industry as it struggles with soured junk-bond and real-estate investments. "Consumers don't care if states or the federal government regulate insurance consumers only seek excellence in regulation, something sorely lacking in today's co-opted, weak system of state regulation," Bob Hunter of the National Insurance Consumer Organization told a House panel Sept. 26. insurance. States oversee insurance, a power granted in the 1945 McCarran-Ferguson Act, which also gave the industry its extraordinary exemption from antitrust laws. An insurance company must be licensed by a state to sell policies. To obtain a license, the company must meet certain standards for, among other things, capital reserves, management and accounting procedures. But standards vary wildly: Utah, for example, allows a life insurer to invest only 5 of its portfolio in real estate. California has a 10 cap, Mississippi 15, New York 20, and Pennsylvania 25. "There are 50 little kingdoms trying to deal with these behemoths," said Marty Leary, research director for the non-profit Southern Finance Project in Durham, N.C. "Prudential probably has more money than the states trying to regulate it. It's a very difficult task." The broadest proposal is a bill by Sen. Howard Metzenbaum, D-Ohio, that not only would lift the antitrust exemption but also would create an Insurance Regulatory Commission to draft standard regulations. The states would be required to enact the standards and would retain hands-on oversight. Enquirer names new Business Editor Spamnnds is a Graduate of Marshall Univer In Ward s performance tests, protits are not a dirty word. He focuses on measures such as return on equity, return on assets, return on revenue. For instance, the Ward's Top 50 achieved a 22.1 return on equity over the past five years, vs. 9.1 for the rest of the industry. That measure tells shareholders or policyholders that the Top 50 is doing an excellent job employing their money. How tough is it to make the list? Sevar.! of Cincinnati's highly rated life insurers weren't included, and only Cincinnati Financial Corp. on the property and casualty side (a separate list) was. "The list gives insurers a benchmark to shoot for," said Ward. "They can see what the best companies are doing." Ward would prefer that consumers not treat his Top 50 like ratings from A.M. Best, Standard & Poor's or Weiss Research. He even wonders if his methodology may be too complicated for consumers (although anyone who has waded through a Best or S&P report knows what a headache that can be). V. But consumers who should be hungry for as much information as possible about their insurer would be foolish not to take a peek at Ward's Top ,50 the next time they're shopping for a policy. Mark Braykovich's Money column ap-pears each Sunday. THE CINCINNATI ENQUIRER Jack A. Seamonds joins The Enquirer this week as Business Editor. He comes to Cincinnnati after four years as editor of the Business Monday section of the Detroit Free Press. Seamonds, 41, was formerly Detroit bureau chief for U.S. News & World Report, served as editor and correspondent for the Associated Press in Toledo and Columbus, Ohio, and was a writer, editor and columnist in Charleston and Huntington, W. Va. sity in Huntington, W. Va., and was an adjunct professor of journalism at Wayne State University in Detroit and the University of Toledo. "I'm delighted to be returning to Ohio and relocating to the jewel of Ohio cities, in particular," Seamonds said. "The diversity and energy of the Cincinnati economy should make it fascinating area for business news coverage." On business coverage, Seamonds said, "One of the most important jobs in newspapers for the 1990s is to listen to the reader and respond tn thp customer. Business news is expanding turn J ft I Jack Seamonds A look at Greater Cincinnati's top 100 private companies by sales, gleaned from information on 900 firms compiled by Arthur Andersen & Co. To be eligible, a company must be privately held, with fewer than 100 shareholders and at least 80 employees. "Jack Seamonds brings strong talents and abilities to a business section that has expanded its role significantly over the past few years," said George Blake, editor and vice president of The Enquirer. We expect him not merely to continue those improvements, but to accelerate them." geometrically in importance to the reader and in complexity in an era when the economy is becoming global. "Sorting out significant news and bringing it home to the reader in meaningful ways are our key tasks for the coming decade."