December 2008 Rating Downgrades/Watch-List

Although the number of life insurance companies that have been downgraded or put on the watch-list is less than in recent months, there is still a substantial number of life insurers that remains on this month's list. One company’s rating has even dropped nine slots, going from a B++ to an E. In such volatile times, it is important to monitor the ratings of the company behind your (client's) policies to determine if the most suitable policy is being provided at the best cost. Inspect what you expect!

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., Mortality & Expenses (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.

Resolve to help clients understand what they are paying for their life insurance policy in 2009. 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.