November 22, 2017

Life Insurance Agency Ratings

How can I assess the financial strength of an insurance company?

Four independent agencies—A.M. Best, Fitch, Moody’s and Standard & Poor’s—rate the financial strength of insurance companies. Each has its own rating scale, its own rating standards, its own population of rated companies, and its own distribution of companies across its scale. Each agency uses numbers or plusses and minuses to indicate minor variations in rating from another rating class.

The agencies disagree often enough so that you should consider a company’s rating from two or more agencies before judging whether to buy or keep a policy from that company. Moreover, agencies will announce changes of ratings on any day. It’s probably prudent to check annually on the ratings of any company you’re interested in.

Some points for using the ratings:

Don’t rely only on what the insurance companies say about their ratings from these agencies. Companies are likely to highlight a higher rating from one agency and ignore a lower one from another agency, or to select the most favorable comments from a rating agency’s report.

To use the ratings from more than one independent agency, you need to understand that each agency’s rating code is different from the others. For example, an A+ from A.M. Best is the next-to-top rating of its 15 categories, but an A+ from Fitch or S&P is their 5th-highest rating (out of 24 categories for Fitch, and out of 19 categories for S&P). Moreover, Moody’s doesn’t have an A+ rating.

However, the ratings can be classified into “secure” and “vulnerable” mega-categories. Here, as of August 2009, are the rating scales for each of the “secure” rating classes, and all the “vulnerable” classes combined (source: The Insurance Forum, September 2009 issue).

Rating Agency Category Description A.M. Best A++ Superior 23 2.4 A+ Superior 110 11.5 A Excellent 232 24.2 A- Excellent 280 29.2 B Very good 135 14.1 B Very good 100 10.4 B and lower Vulnerable 78 8.1 Fitch AAA Exceptionally strong 10 3.2 AA+ Very strong 10 3.2 AA Very strong 32 10.4 AA- Very strong 55 17.8 A+ Strong 78 25.2 A Strong 53 17.2 A- Strong 33 10.7 BBB+ Good 14 4.5 BBB Good 6 1.9 BBB- Good 11 3.6 BB and lower Vulnerable 7 1.2 Moody’s Aaa Exceptional 6 3.3 Aa1 Excellent 7 3.8 Aa2 Excellent 9 4.9 Aa3 Excellent 35 19.0 A1 Good 50 27.2 A2 Good 26 14.1 A3 Good 13 7.1 Baa1 Adequate 10 5.4 Baa2 Adequate 2 1.1 Baa3 Adequate 12 6.5 Ba1 and lower Vulnerable 14 7.5 S & P AAA Extremely strong 15 4.4 AA+ Very strong 14 4.1 AA Very strong 27 7.8 AA- Very strong 66 19.2 A+ Strong 64 18.6 A Strong 77 22.4 A- Strong 33 9.6 BBB+ Good 15 4.4 BBB Good 4 1.2 BBB- Good 9 2.6 BB and lower Vulnerable 20 5.8 The Street.com A+ Excellent 6 0.9 A Excellent 14 2.1 A- Excellent 35 5.3 B+ Good 61 9.2 B Good 152 23.0 B- Good 105 15.9 C+ Fair 89 13.4 C Fair 113 17.1 C- Fair 61 9.2 D+ and lower Vulnerable 126 19.0