Recent downgrades appear to reflect the lingering effects of the sub-prime crisis with the number of insurers being downgraded still exceeding the number of insurers being upgraded.  Such downgrades can, therefore, signal a drop in an insurer's reserves and/or profitability. In response, downgraded insurers can be more likely to increase internal policy expenses to replenish these reserves, improve profits, and re-establish financial strength and claims-paying ability ratings. Use a Confidential Policy Evaluator (CPE) Research Report to measure such policy expenses and know if a particular insurer is increasing or decreasing policy expenses. 

While buyers and financial advisors 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. Using a Confidential Policy Evaluator (CPE) Research Report to periodically measure policy expenses can therefore also monitor such insurer pricing activities over time. 

When Ratings Go Down, Costs/Premium Can Go Up

 

Leading rating services like A. M. Best, Standard & Poors, Moody's and Fitch 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.  

August 2008 Downgrades

During the month of August of 2008, ratings for the insurers shown to the right were downgraded or placed on the watch-list 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.    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.

Bankers Conseco Life Bankers Life & Cas Chesapeake Life Insurance Company Colonial Penn Life Insurance Company Conseco Health Insurance Conseco Insurance Company Conseco Life Conseco Senior Health First Allamerica MEGA Life & Health Mid-West National OM Financial Life Insurance Company OM Financial Life Insurance Company of NY Orkney Re Inc RGA Reinsurance Scottish Re (US) Inc Scottish Re Life Corp Washington National