Bar Bulletin

July, 2004

Insurance Company Ratings
~Alphabet Soup?~

By Haswell M. Frankli

A+ sounds like a very good grade to most of us, but when comparing the financial strength of insurance companies, an A+ may not necessarily equal an A+ in the academic world.

Sound confusing? It can be, but at the same time very true because different rating services use different systems and designations for rating companies. For example, A.M. Best’s rating of A+ is just their second-best rating while for Standard & Poor’s A+ is the fifth-best rating.

One of the main responsibilities of insurance and financial professionals is to recommend insurance companies that are financially sound, have excellent performance records, and whenever possible have received high ratings from at least three rating services. It is often helpful to make some sense of the “alphabet soup” of ratings services. “High ratings” for these services are defined as follows:

  • A.M. Best Co.: A++

  • Fitch Ratings: AAA, AA+

  • Moody’s Investors Services, Inc.: Aaa, Aa1, Aa2

  • Standard & Poor’s Corp.: AAA, AA+

There are certainly situations in which recommending companies that do not fall into this category makes sense, especially when there are serious insurability issues due to special health or other risk factors. However, it is particularly important when recommending an insurance product designed to fill a long-term need that the company being recommended has strong financial ratings. A strong financial rating does not guarantee financial stability in the future, but it does have value as an indicator of a company’s current level of financial soundness.

Because of changes in the marketplace and in your personal situation, regular review appointments continue to be an important way to help you make appropriate adjustments in your long-term strategies to enable you to reach your long-term financial goals in the most tax- and cost-effective manner.

Haswell M. Franklin, CLU, RHU, is with FranklinMorris, Coordinating Broker for the Bar Associations Insurance Agency, Inc.

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Publications : Bar Bulletin: July, 2004

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