Checking Insurance Company Safety
by AAII Staff
Any insurance company product you buy—whether it is an insurance policy or some type of annuity—is only as secure as the company that is issuing it. If you are buying an insurance company product, understanding the company’s underlying financial health should play an important role in your decision. And if you own a policy or an annuity, keeping track of the issuing company’s financial health should play an important role in your investment monitoring process.
How can you evaluate the financial health of an insurance company?
One approach is to check the financial safety ratings that have been assigned to the company by one of the ratings agencies.
Listed below are the Web sites of the most widely used rating agencies that evaluate the financial stability of insurance companies. All provide ratings information free to consumers on their sites (although some do require you to register).
It is important to note that these agencies use different methodologies to evaluate financial stability. In addition, the agencies all use different rating scales, so an “A” rating by one agency is not comparable to an “A” rating by another. All of the rating agencies provide an explanation of their methodologies and rating scales on their Web sites.
One other site you might want to check out when evaluating or monitoring an insurance product is the National Association of Insurance Commissioners, which is the national organization for state insurance regulators. This site at www.naic.org does not have financial stability ratings, but it does provide other information on individual insurance companies, and links to your own state’s insurance regulator.
A.M. Best specializes in the insurance industry and rates only insurance companies. Ratings evaluations are paid for by the insurance company. The site provides ratings information for free at its Consumer Insurance Center Web site; more thorough company evaluations are available for a fee. The site provides a full explanation of how A.M. Best evaluates the companies, and an explanation of the ratings scale, which ranges from A++to F (liquidation).
Fitch Ratings is a broad-based ratings agency; ratings evaluations are paid for by the company being evaluated. The site provides ratings information for free (Go to Insurance under Financial Institutions; click on Insurer List under Ratings); more thorough company evaluations are available for a fee. The site provides a full explanation of its ratings methodology and scale, which ranges from AAA (highest) to D (default).
Moody’s is a broad-based ratings agency; ratings evaluations are paid for by the company being evaluated. The site provides ratings information for free, but you must register. Ratings can be found from the home page by going to the Financial Institutions section, clicking on Insurance, and then going to the Insurance Financial Strength Ratings section. The site also includes a description of its insurance financial strength ratings methodology and its ratings scale, which ranges from Aaa to C (extremely poor prospects).
Standard & Poor’s
Standard & Poor’s is a broad-based ratings agency; ratings evaluations are paid for by the company being evaluated. Ratings are available for free by going to the Ratings section and selecting Insurance Ratings; in the credit ratings list, make sure the rating type is labeled FSR (Financial Strength Rating). The site includes a description of its Insurer Financial Strength ratings methodology and its ratings scale, which ranges from AAA (highest rating) to CC (extremely weak) and R (regulatory supervision).
Weiss Ratings tracks the financial safety of life, health and insurance companies. Unlike the other major rating agencies, Weiss Ratings does not accept compensation from the companies it rates, making the ratings more independent.