Inquiring Agents want to know ... FE Carriers and Financial Strength

[Tahoe Ray]

I posted my policy's language at the beginning of this thread. Specific to that policy, it is at the time of placement.

I personally try to go by S&P. They are much stricter than AM Best.

Currently, S&P has ZERO life carriers rated as AAA. I think there were just 2 rated AAA to start 2020.

AM Best has around 15 rated as A++ right now.

There are big difference between the ratings systems.

Fitch only has 8 AAA rated carriers. Moodys only has 5 Aaa rated carriers.

So obviously AM Best is more lenient with their top rank than the other big 3 rating agencies. With S&P being the most strict.

Just use Comdex.

 

[scagnt83]

But using an A rated company is no guarantee that they won't end up with having to have a GoFundMe for the funeral expense.. There were plenty of A rated and even A+ companies that went under during the turbulent 80s and 90s..

How many of the better rated carriers went into actual liquidation vs staying in rehabilitation or conservation?

CB is going through actual liquidation. The other two stages do not require guarantee funds to be paid out, and claims are still paid like normal (often coming from other carriers though). But the liquidation process, I think, is the stage were the months of delays happen, and the guarantee limits kick in. Like what CB is going through right now.

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A strong rating is no guarantee of anything. But its an indicator of the likelihood of something bad happening.

Statistically speaking, there is a far greater number of lower rated carriers that have gone insolvent vs. high rated carriers.

Do you run red lights when driving?

Plenty of people run red lights every day and dont get hurt or killed. But running that red light certainly increases the chances of them being hurt or killed. So most people choose not to run red lights because of the highly increased chance of personal danger.

Why would you increase the chance of financial danger with something that is supposed to protect you from financial danger? Doesn't make sense for a client to do unless there is a drastic difference in premiums. Only reason it makes sense for an agent to do is for the comp...

 

[scagnt83]

Just use Comdex.

I do. Its certainly the easiest to understand for the client and agent.

But even Comdex has its drawbacks. Not all carriers are rated by all ratings agencies. Even some of the big names. So its not exactly an apples to apples comparison when some Comdex scores are based on just 2 ratings and others are based on 3, 4, or even 5 ratings.

But extremely few rated carriers do not have a rating from S&P or AM Best. So it seems to be more of an apples to apples type of comparison with those at least. Of course when your talking about certain niches, they all have ratings from all 4 so comdex works well. But even some like Protective and even Penn are not rated by all 4.

 

[Lloyds of Lubbock]

But even Comdex has its drawbacks. Not all carriers are rated by all ratings agencies. Even some of the big names. So its not exactly an apples to apples comparison when some Comdex scores are based on just 2 ratings and others are based on 3, 4, or even 5 ratings.

Spot on!
It seems if you dont like one rating agency you can drop it and have a higher comdex

 

[DayTimer]

"We'll do our best, but no guarantees."

That there is something no insurance agent ever wants to hear from a carrier: We sell guarantees. If we don't have that, we have a big problem.

And, the carrier pays the agency for the rating..

Yes, the financial institution pays for the audit which results in the rating, and my understanding is that once the carrier agrees to submit to the audit it must allow for the public dissemination of the results, i.e. the rating.

So some companies will argue that they do not have a rating because they choose not to pay for the ratings agency's audit fee.

But isn't it just as likely that these small companies would not want anyone to know what the ratings agency might think of their true financial condition? I mean, if you know you are going to come up with a C, or even a B-, you might rather just go with the "we see no reason to pay the audit fee just for a "rating."

So obviously AM Best is more lenient with their top rank than the other big 3 rating agencies. With S&P being the most strict.

All the more reason to be somewhat suspicious as to why these carriers wouldn't at least want an AM Best rating.

 

[Lloyds of Lubbock]

Not to pile on ONat but using them as an example.
They did not like the rating of one company so they no longer subscribed to their service and the rating was removed.
Security Mutual did something similar a few years ago

 

[scagnt83]

Not to pile on ONat but using them as an example.
They did not like the rating of one company so they no longer subscribed to their service and the rating was removed.
Security Mutual did something similar a few years ago

Do you know if Penn Mutual has always not had a Fitch rating? Or is that something they dropped?

 

[titeye]

...So some companies will argue that they do not have a rating because they choose not to pay for the ratings agency's audit fee.

But isn't it just as likely that these small companies would not want anyone to know what the ratings agency might think of their true financial condition? I mean, if you know you are going to come up with a C, or even a B-, you might rather just go with the "we see no reason to pay the audit fee just for a "rating."



All the more reason to be somewhat suspicious as to why these carriers wouldn't at least want an AM Best rating.

Bingo! That is exactly what I was driving at. What is the downside to an insurance company paying to be rated, audited, or whatever it is called? Does it sound reasonable that a solvent and profitable insurance company would say, "oh, the fee is too expensive and not worth it"?

 

[DayTimer]

Does it sound reasonable that a solvent and profitable insurance company would say, "oh, the fee is too expensive and not worth it"?

No. No it doesn't.

 

[scagnt83]

Bingo! That is exactly what I was driving at. What is the downside to an insurance company paying to be rated, audited, or whatever it is called? Does it sound reasonable that a solvent and profitable insurance company would say, "oh, the fee is too expensive and not worth it"?

No. No it doesn't.

State regulators already require carriers to get independent audits if Im not mistaken. So the cost of the audit is already something they pay for.

AM Best maxes out on fees for ratings at $120k. It is based on size & complexity of the carrier.

For a company taking in tens of million or hundreds of million; $120k should be nothing.