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  • Ratings agency can find reputable insurance companies
  • July 24, 2013
  • Tony Steuer

    By Tony Steuer, CLU, LA

    When selecting or evaluating a life insurance company, a logical place to begin is by reviewing the ratings given by the four major insurance rating services.

    These ratings are an evaluation of an insurance company’s financial soundness and creditability, which are the opinion of any of the four rating agencies.

    In some cases, the life insurance company will ask one or more rating companies for an evaluation and rating. The life insurance company will then pay a service fee to the rating agency, which typically ranges from $25,000 to $30,000 per rating.

    The four major rating systems are A.M. Best Company, Standard and Poor’s Corporation, Moody’s Investors Service, and Fitch Ratings. Each company employs their own rating technique and evaluation process.

    Each rating agency provides a description of its analysis while also defining the meaning of each rating, from the highest to the lowest level of importance.

    Summary of Rating Services:

    There are four rating agencies that rate and evaluate life insurance companies.

    A.M. Best Company

    On their homepage, you can simply enter the name of a company under the “Search Ratings” category and find the following information:

    · Age of the company – minimum 50 years of experience is recommended

    · Corporate address

    · Company ownerships structure – stock or mutual funds

    · Financial size category – recommended minimum is IX

    · Business overview

    · History of the company, including any mergers and acquisitions

    In addition to this free data, A.M. Best also offers a complete company report for $19.95, which provides financial statistics for the past five years.

    But unless you’re proficient at interpreting insurance company financials, this report may prove rather overwhelming

    Standard & Poor’s

    To access the insurer financial strength rating, click here. Here you can locate your insurance company and their rating report, which is quite detailed. Pay attention to the following information:

    · Total assets for five years – goal is moderate growth over this period with a recommended minimum of $2 billion in assets

    -Total liabilities – should experience roughly the same growth rate as total assets

    -Net income – should remain relatively stable

    -Business review and history

    -Pie chart indicating company’s product sales – look for product diversification

    If a company sells too much of any one policy type a sudden shock to the marketplace, such as a change in the economy or tax system, could result in a sharp decline in the company’s business.

    Fitch

    The Financial Strength Rating Reports can be found here. In addition to a letter rating, Fitch provides a detailed business review and an overall outlook for the company. Pay attention to the following information

    -Product mix – life, annuities, group insurance

    -Company’s marketing focus – upscale and advanced marketing is usually a sign that much of the company’s business is tax-oriented

    -Primary states where the company sells insurance – look for diversification

    -Company’s reinsurance practices

    -Quality of the assets in which the company invests

    Moody’s

    Insurance Financial Strength Ratings can be found here. It can sometimes be a challenge to find the page on each site; however, keep looking as the information is there. In order to gain access to most of the online information, you do need to establish a free account.

About Tony Steuer

Noted insurance author Tony Steuer has spent over 25 years in the life insurance industry. Steuer’s leadership roles include serving on the California Department of Insurance Curriculum board and the National Financial Educator's Council Curriculum Advisory Panel as well as having served as President of the San Francisco Chapter of the American Society of CLU & ChFC, President of the leading Life Insurance Producers of Northern California, and as a board member of the San Francisco Life Underwriters Association. Mr. Steuer is the author of Questions and Answers on Life Insurance: The Life Insurance Toolbook, The Questions and Answers on Life Insurance Workbook and The Questions and Answers on Disability Insurance Workbook - the first two were awarded the “Excellence in Financial Literacy (EIFLE) Award from the Institute of Financial Literacy. Steuer holds a Chartered Life Underwriter (CLU) designation and also holds the Life and Disability Insurance Analyst License, a designation that is held by less than thirty people in California.

Creative Commons License
Questions & Answers on Life Insurance by Tony Steuer, CLU, LA, CPFFE is licensed under a Creative Commons Attribution 3.0 Unported License.

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