23 April 2013 0 Comments

The Non-Rating Rating

thumbs up!In my last entry I briefly discussed the 4 major Nationally Recognized Statistical Rating Organizations (NRSRO) for insurance companies as determined by the U.S. Securities and Exchange Commission and the National Association of Insurance Commissioners.  I always look first to A.M. Best Company because they have been at it since 1899 and are the only rater that has historically focused only on the insurance industry.

It can be very confusing to look beyond Best, but there is now a resource that reduces that confusion by using a different scale.  Comdex does not rate companies; it ranks them so you can see at a glance where a company falls among all rated insurers.

In order for a company to receive a Comdex Ranking, they must have ratings from at least 2 of the following services: Best, Standard & Poor’s, Moody’s and Fitch.  The Comdex Ranking is a relative number based on all rated companies.  It is stated as a percentile in rated companies.  Thus a company with a Comdex Ranking of 80 is in the top 20 percentile of all companies receiving at least two ratings.

It is important to note that because the Comdex Ranking is relative to all companies, it should not be confused with a grading scale.  For example, a 75 Comdex Ranking is not a “C” as it might be in the classroom.  It means that this company is in the top 25 percentile of all companies receiving ratings.

You can request that your agent obtain a Comdex Ranking from Vital Signs, the company who originated and maintains this Ranking method.  The one page version of their report ranks up to 5 insurance companies on a single page giving their ratings from each of the services we have referenced as well as the Comdex Percentile.  Additionally, this single page report produces comparative information on each company’s assets and liabilities; invested asset distribution and yield; non-performing assets as % of surplus and AVR; bond quality and income and earnings.

You are also able to show the average Comdex Ranking and other financial data on the 100 largest life insurance companies compared.  Of the over 700 companies in its Rankings, the top 25% represent roughly 175-200 of those companies.  This is an excellent tool for agents to use in helping clients determine the financial strength of the company they select.

Next, I’ll discuss how there can be such a huge difference in premiums from one company to another for apparently the same type of policy.

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