Annuity companies receive rating assessments from 3rd party agencies on the creditworthiness and strength of the company. There are four large credit rating agencies that the insurance companies usually turn to for their ratings.
They are A.M. Best, Fitch, Moody’s Investors Services and Standard and Poor’s. An insurance company will commission one or more of these four agencies to rate their financial status. The financial rating is determined by several factors. The company's ability to meet its future financial obligations, it cash reserve, and the companies ability to manage risk when issuing policies are considered the most important of those factors.
Annuity Rating Agencies
As stated above, there are four main rating agencies, (A.M. Best, Fitch, Moody’s Investors Services and Standard and Poor’s). While they do use similar methods and calculations to determine an annuity companies rating, they all use proprietary systems unique to the specific rating agency. In additions to using different methods for determining the rating, each agency also has it's own grading system. For example, the top "grade" for S&P is AAA - Extremely Strong, while at A.M. Best the top grade rating is A++, Superior.
Breakdown of Ratings Example
A.M. Best ratings (A++ to F) are assigned to insurance companies that subscribe to their interactive rating service. The Best's Rating represents and opinion based on a comprehensive quantitative and qualitative evaluation of a company's balance sheet strength, operating performance and business profile.
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