October 2008 Life Insurance Company

Rating Downgrades/Watch List

With the recent changes in the market and with the government helping particular insurance companies, it is important to monitor the ratings of the insurance company behind your (client’s) policies.

If 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, can be 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.

Act now!  Use a Confidential Policy Evaluator (CPE) Research Report to measure policy expenses and know if a particular insurer is increasing or decreasing policy expenses. 

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.