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What Insurance Company Ratings Actually Mean – Choosing an Annuity Investment

What Does an Insurance Company Rating Really Mean?

Before making a significant investment, we recommend researching the insurance companies you’re considering. One method of comparing insurance companies is to look into their financial strength ratings.

An insurance company’s financial strength rating refers to that particular company’s ability to pay policyholders’ claims.

There are four major agencies responsible for the ratings of insurance companies: Moody’s Investor Services, A.M. Best Company, Inc., Fitch Ratings, and Standard & Poor’s Insurance Ratings Services.

However, it should be noted that these ratings are subjective.

Insurance companies pay these agencies to conduct research into their financial strength. After a large series of surveys has been completed, an agency releases their ratings. Each agency follows their own rating standards and scales, so ratings for one insurance company often do not match across agencies.

For example, an A+ rating from A.M. Best is the second highest rating from that agency, while an A+ from Fitch Ratings is only their fifth-highest. Moody’s does not even offer an A+ rating.

The differences in scale are wide as well. A.M. Best has 15 categories of rating, Fitch Ratings has 24, and Standard & Poor’s has 19.

After you’ve done research on your own, the next step is consult a financial expert to verify or supplement your initial ideas, answer any questions you have, and make further recommendations.

If you’re interested in learning more about how annuities work, check out our free 8-part educational video series. It’s designed to help educate you on how fixed index annuities work and how you can use them as part of retirement income planning.

Choosing an Insurance Company Based on Ratings

Your best option is compare the financial strength ratings of insurance companies from multiple rating agencies.

Insurance companies often only advertise their top ratings, or specific positive comments from one agency. If you dig deeper and find all their ratings, you can get a better idea of how reliable that particular insurance company is.

Additionally, depending on your particular situation, the insurance company with the highest possible rating may or may not offer the best annuity for you. Often companies with already strong ratings will offer higher rates in an effort to attract business and build their asset base enough to achieve the next higher rating. We recommend you familiarize yourself with what each rating grade means, and we never recommend a client do business with a company whose financial strength and claims paying ability are questionable.

Do you still have questions about finding the right insurance company for your annuity portfolio? There are so many options and considerations to discuss, so that’s completely understandable.

Contact us today to schedule a complimentary appointment with one of our experts. We’ll help you remove the guesswork from your planning.

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