What Do Financial Ratings Mean for Annuity Companies
A.M. Best, Fitch, Moody’s Investor Services and Standard and Poor’s are the four leading financial ratings agencies for life insurance and annuity companies. These four agencies ascertain the ability of an insurance company to meet the current and future financial obligations to its policyholders. While credit ratings of annuity companies should never be taken as investment advice, they do provide information about a company’s credit risk.
What Financial Ratings Mean for Individual Investors
Financial ratings not only give investors an idea of how financially sound annuity companies are, but also provide a way to “level the playing field” for individual investors. Individual investors do not have access to the same information that larger companies do. While individual investors can read annual reports and quarterly profit and loss statements, so much of what goes on in the financial services arena happens behind the scenes.
Individual investors simply cannot call the chief financial or investment officer the way a large stock brokerage or mutual fund company can. By having access to financial ratings, however, investors can compare one company to another and be better able to evaluate the risk they are taking when purchasing an annuity.
Because the financial obligation of an annuity can stretch out over several decades, and annuities are not FDIC insured, investors should feel confident that the company from which they purchase an annuity will be able to make payments according to the contract at some point in the future.
Financial ratings can be difficult to compare among agencies due to differing grades and descriptive language. However, the ratings determined by all of the agencies reflect an annuity company’s creditworthiness and risk of default. A number of different criteria are evaluated including historical payment data, contracts outstanding, cash on hand and the total amount of investments owned.
Highest and Lowest Ratings of Each of the Four Ratings Agencies
1) A.M. Best
The highest A.M. Best rating is “A++, Superior, Able to meet insurance obligations.” The lowest is “S, Suspended, Unevaluated due to inadequate information or lack of cooperation.”
Fitch ratings range from “AAA, Exceptionally Strong, Very unlikely to be affected by adverse market conditions” to “C, Distressed, Interruption of payments is imminent.”
3) Moody’s Investor Services
Moody’s assigns ratings between “AAA, Extremely Strong, Market conditions are unlikely to affect a fundamentally strong position” and “C, Extremely Poor, Very poorly positioned to offer financial security.”
4) Standard and Poor’s
Along with Moody’s, Standard and Poor’s is likely the most well-known of the ratings services. They assign ratings from “AAA, Extremely Strong, Very unlikely to be affected by adverse economic conditions” to “NR, Not Rated, No opinion.”
The Leading Annuity Companies
Each of the following leading annuity companies has received consistently high ratings among the insurance and annuity companies ratings agencies. These insurance companies are some of the most trusted and respected in the industry, and service both individual and corporate clients. Some even provide services to federal and state government agencies in the form of pension and benefit administration.
An investor considering buying an annuity from one the following companies is always advised to check the websites of each of the ratings agencies to check current annuity ratings. Each annuity company will also more than likely list the ratings assigned to it on its own website.
Allianz, Aviva and AXA
Allianz, Aviva and AXA are all publicly traded insurance and financial services companies based outside the United States. Allianz is based in German, Aviva in Britain and AXA in France. AXA Equitable is the division of AXA that operates in the United States. Each company offers products in the United States including annuities. Each company maintains very high ratings from the four annuity company rating agencies.
ING is a global financial services company that originated in the Netherlands. Offering comprehensive financial services, its main focus is on saving, especially for retirement. As an annuity company it offers a number of different products including immediate annuities for guaranteed lifetime income.
John Hancock, Lincoln, MetLife and Prudential
Each of these life insurance and annuity companies is based in the United States. They are all publicly traded companies servicing both individual and corporate clients. Each is also highly respected for corporate responsibility and governance.
Named after the American Revolutionary War leader, John Hancock is based in Boston, MA. In 2004, John Hancock merged with Canadian company Manulife Financial in order to provide additional financial services options to its clients.
Lincoln Financial Group is a Philadelphia, PA financial services group. It offers a variety of financial services products, including variable, index and fixed annuities.
Prior to 2000, MetLife was a mutual company. Headquartered in New York, NY, MetLife is a leading financial services company for both individuals and businesses. MetLife specializes in savings and retirement products. It also manages a number of different retirement and insurance programs for state and federal employees.
Prudential is based in Newark, NJ. It is one of the oldest publicly traded insurance and financial services companies in the United States. Specializing in long-term investment products, Prudential consistently earns high ratings.
New York Life and Pacific Life
New York Life and Pacific Life are both mutual companies. Unlike a publicly traded company that is owned by shareholders, a mutual company is owned by its policyholders. Many financial and investment advisors consider this an advantage because mutual companies are not driven by short-term profits as they do not have stocks that trade on a stock exchange.
Based in New York, NY, New York Life is the largest mutual insurance company in the United States. Its subsidiary, New York Life Insurance and Annuity Corporation sells annuity products. One of the oldest insurance companies in the country, New York Life is currently the only insurance company to hold the highest possible rating from each of the four ratings agencies.
Pacific Life is based in Newport Beach, CA. While it, too, is a mutual company, it is owned by its policyholders and contract holders. The company offers life insurance, mutual funds and annuity products to both individuals and businesses.
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