California Insurance Continuing Education - Financial Stability
- By Edward Hulse
- Published 08/5/2011
A professional will carry information with them from at least one of the rating services giving the rating of the annuity carriers that he/she represents. This information is available from most public libraries, and a professional adviser will maintain the necessary information so if they do not have them at point of sale, then can supply the client with this very necessary information immediately thereafter. The client (investor) can also make inquiries of the financial planner, broker, or agent to find out whether he or she is dealing with a full-time, professional adviser.
The general areas that can be furnished to the investor by rating services are:
3.annual statements, and
4.the investment portfolio.
Perhaps the best known of the rating services is A.M. Best. Most agents have a copy of Best Agents Guide to Life Insurance Companies. A.M. Best Company reviews the financial status of thousands of insurers and rates them on their financial strength and operating performance based on the norms of the life and health insurance industry. The Best Company has been in business since 1899 and started rating insurers in 1906. In 1934, Best stopped its alphabetical ratings (A+, A, etc.) and began a rating system based on general descriptions measuring the performance of each company in the areas of: competency of underwriting, control of expenses, adequacy of reserves, soundness of investments, and capital sufficiency.
In general, a prudent investor should only consider the top four categories, particularly with fixed-rate contracts. There are no advantages in dealing with a company that has a B++ or lower rating. Variable Annuities, on the other hand, do not co-mingle their accounts and some financial advisors believe that lack of solvency or bankruptcy does not affect the value or integrity of Variable Annuity investments. However, to be realistic, if an insurance company goes bankrupt, it is possible that the return on variable contracts might be frozen by a purchaser of the contracts or by the Department of Insurance. In any event, the “prudent” investor would want to avoid any such eventualities, even though remote.
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