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.
