|
Recent downgrades appear to reflect the lingering effects of the sub-prime crisis. Such downgrades can, therefore, signal a drop in an insurer's reserves and/or profitability. In response, downgraded insurers are more likely to increase premiums to replenish these reserves, improve profits, and re-establish financial strength and claims-paying ability ratings.
Thus, while buyers typically use ratings of financial strength and claims-paying ability to identify those insurers most likely to pay future death benefit claims, a decline in ratings can also signal increases in policy costs and corresponding increases in required premiums. Consequently, financial strength and claims-paying ability ratings should be monitored not just at the time of purchase but regularly throughout the life of the policy.
When Ratings Go Down, Premiums Go Up
Leading rating services like A. M. Best, Standard & Poors, Moody's, Fitch, and TheStreet.com continually evaluate insurance carriers for their financial strength (i.e., the profitability of the insurer's business operations) and claims-paying ability (i.e., the sufficiency of insurer's reserves compared with its future claims obligations). While rating services may focus on different key indicators or qualitative factors, all ratings reflect some combination of these two measures.
Consequently, when an insurer's rating is downgraded, the change means that either the insurer's profitability has declined, the insurer's reserves have deteriorated, or both. The insurer's most immediate response to a downgrade in its ratings, and its most effective means for restoring profitability and recovering reserves, is to increase policy costs for cost of insurance (COI) charges and expenses. In other words, when ratings go down, premiums are likely to go up.
Use CPE to Monitor Ratings & Re-Evaluate Policies
Because declines in ratings can signal increases in policy costs, the appropriateness of a policy should be re-evaluated when the insurer's financial strength and claims-paying ability rating is downgraded. To fully assess the impact of recent rating downgrades on your clients' permanent life insurance portfolios, or to establish a baseline by which to judge the impact of future shifts in ratings, request a Confidential Policy Evaluator (CPE) Report now. Just fax the detailed expense report from the policy illustration toll free to 800-409-3222 to request a CPE Report for your client's policy. If the policy illustration is not available, download a sample Request for Information (RFI) letter to gather the necessary policy information.
During the month of July of 2008, ratings for the following insurers were downgraded by one or more of the rating services that evaluate the financial strength and claims-paying ability of insurance companies. Downgrades reported here are provided by VitalSigns, a service of EbixExchange.
| American Bankers |
| Aviva Life |
| Blue Shield of CA Life & Hlth |
| Caribbean American Life Assur |
| Cincinnati Life Ins Co |
| CUNA Mutual Ins Soc |
| Delta Dental Ins Co |
| First Security Benefit L&A NY |
| Harleysville Life Ins Co |
| Monumental Life |
| National Benefit |
| Scottish Re (US) Inc |
| Scottish Re Life Corp |
| Security Benefit |
| Sun Life & Health Ins US |
| Triple-S Vida Inc |
| United Ins of America |
|
