19 April 2013 0 Comments

THE ABC’s OF RATING LIFE INSURANCE COMPANIES

Kids getting on rthe school busAs a kid, when I brought home a report card with an “A” that was about as good as it got.  Even a “B” was to be commended, especially when it was for Latin, which I never could get into.  But, when you look at the ratings doled out by the top four financial rating services that rank life insurance companies, it isn’t that simple.  If an insurance company is rated B by A.M. Best Company that would indicate only a “Fair” ability for them to meet their ongoing insurance obligations.  An A+ from Fitch Ratings is only their 5th best rating, not their highest.  Additionally, not every rating service rates every insurance company.  So, how’s the buyer of a life insurance policy to know the financial strength of a company upon whom his family might need to depend for their financial security?

The four rating services most generally referenced are A.M. Best Company, Standard & Poor’s, Moody’s and Fitch Ratings.  All of these services are designated as a Nationally Recognized Statistical Rating Organization (NRSRO) by the United States Securities and Exchange Commission.  Of these services, Best’s is the only one that has historically focused exclusively on the insurance industry.  This is the place to start.  They rate just about every life insurance company operating in the United States.  If the company you are considering is not rated by them, red flags should go up.

Here are the Best’s rating that are assigned and the description of how Best’s considers their ability to meet ongoing insurance obligations:

Rating Descriptor
A++, A+ Superior
A, A- Excellent
B++, B+ Good
B, B- Fair
C++, C+ Marginal
C, C- Weak
D Poor
E Under Regulatory Supervision
F In Liquidation
S Suspended due to a timely or adequate information
NR Company not rated by A.M. Best

Additionally, Best describes companies rated B+ or higher as “Secure” and companies rated B through F as “Vulnerable.”

If you want to look at other ratings, there is one place where all of this information can be accessed and the relative position of each company determined.

Coming up…Comdex ratings.

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