January 2009 Rating Downgrades/Watch-List

A number of insurers requested clarification of ratings changes from certain ratings services. We are therefore republishing this issue of our rating downgrades/watch-list newsletter with the highlighted changes below.

Although there are hopes of better outcomes for life insurance companies in 2009, it seems the year is beginning right where 2008 left off. The number of life insurers that have been downgraded or put on the watch-list continues to increase. There are even a few companies whose ratings drastically dropped, jumping as many as eight grades in financial strength and/or claims paying ability ratings (from a C to an F), which still leaves considerable uncertainty for some insurers.

It is important to monitor the ratings of the company behind your (client’s) policies to determine if you(r clients) are being provided with the most suitable and appropriately priced product.

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, 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.

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

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.  The below list of life insurance companies have either been downgraded by or placed on a watch-list by one or more of the above ratings services.

However, please note that different ratings services have different means and methods for determining when an insurer should be downgraded and/or placed on their watch-list, and thus different ratings downgrades and watch-lists have different meanings. For instance, only certain ratings agencies are registered with the Securities and Exchange Commission (SEC) as a Nationally Recognized Statistical Rating Organization ("NRSRO") and thus subject to SEC regulation and utilized by insurance regulators. As such, some insurers, agents, brokers and/or insurance consultants view NRSRO-registered ratings services as being a more credible indicator of a given insurance company’s reserves and claims paying ability.  For a list of these ratings services who are NRSRO-registered, click here.

THEInsuranceAdvisor.COM research reports, therefore, consider the overall financial strength and claims-paying ability ranking of the insurer for the product that is the subject of the research report based on all ratings services, and assigns a full star in the TIA Star Rating system to those insurers ranked in the top decile (top-10%), a 1/2 star to those insurers ranked the top quartile (top-25%), and no star for those insurers ranked even lower. For more information about the actual ratings from the ratings services of any of the insurers listed below, either contact an agent, broker or company representative of that insurer, or request a Confidential Policy Evaluator (CPE) Research Report which includes both the actual ratings and essential information beyond just financial strength and claims-paying ability that addresses the overall suitability of any given life insurance product based on all 5 major factors of suitability.