The reality is that A.M. Best ratings have not been very good predictors of company failure. Think "Executive Life" and (senior moment) the huge mutual company in NJ that went out 15 years ago.
To date, Standard of Indiana and Shenandoah have been put into receivership and that was due to a great extent to the meltdown in CMO's which themselves were highly rated and supposed to be investment grade.
I think that the size of a carrier is important as is the level of reserves. I think a COMDEX rating is much more informative than A.M. Best.
Having said that, I AM leery of an A- rating since one downgrade takes it into the B category. But an A rated carrier I have no problem with. I was involved in the design of indexed annuity products with two different carriers and I remember the Sr. VP of annuity operations from an A rated carrier say that they had no interest in becoming an A+ because it would require them to re-price products so that they were less favorable for the clients, producers and would put extra statutory pressure on their capital. They were WELL reserved already and simply did not want to be FORCED to reserve to the same level.
Anyway, it would not be difficult to defend an E&O claim if you wrote a carrier rated any shade of A.
To date, Standard of Indiana and Shenandoah have been put into receivership and that was due to a great extent to the meltdown in CMO's which themselves were highly rated and supposed to be investment grade.
I think that the size of a carrier is important as is the level of reserves. I think a COMDEX rating is much more informative than A.M. Best.
Having said that, I AM leery of an A- rating since one downgrade takes it into the B category. But an A rated carrier I have no problem with. I was involved in the design of indexed annuity products with two different carriers and I remember the Sr. VP of annuity operations from an A rated carrier say that they had no interest in becoming an A+ because it would require them to re-price products so that they were less favorable for the clients, producers and would put extra statutory pressure on their capital. They were WELL reserved already and simply did not want to be FORCED to reserve to the same level.
Anyway, it would not be difficult to defend an E&O claim if you wrote a carrier rated any shade of A.
