September 2008 Life Insurance Company Rating Downgrades/Watch List

Recently, generally very well capitalized insurers are being downgraded or put on the watch list, more so than in the previous times. Consequently, when an insurer's rating is downgraded, the change often 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, policy charges are more likely to be increased, and thus premiums are likely to (need to) go up.

If you(r clients) do not know what they are paying for cost of insurance charges (COIs), fixed administration expenses (FAEs), cash-value-based "wrap fees" (e.g., M&Es) and premium loads in their life insurance policy holdings now, then there will be no way to know if or when such policy expenses are increased. Now is the time to find out. For instance, as reported in the NY Times recently, when insurance companies sell-off or transfer higher-yielding assets and replace them with stable value assets that produce less income to strengthen its capital structure, the insurer would probably have to make up the difference by charging more for its life insurance policies^[1].

If you(r clients) do not know what they are paying for cost of insurance charges (COIs), fixed administration expenses (FAEs), cash-value-based "wrap fees" (e.g., M&Es) and premium loads in their life insurance policy holdings now, then there will be no way to know if or when such policy expenses are increased. Now is the time to find out.

Act now! Use a Confidential Policy Evaluator (CPE) Research Report to measure the appropriateness of pricing and overall suitability for you(r) clients' policies based on the 5 factors of suitability.

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.

^{[1]The New York Times, Business Day section, page C1 "A Lifeline For A.I.G. From State"}