Financial health of life insurer is key strength
By Eileen Ambrose
Baltimore Sun
It's tempting to go with the lowest premium when buying insurance.
But when buying a life policy, annuity or other product where benefits might not be paid out for decades, it's more important to make sure the insurer will be around when you need it.
"The most important factor in selecting an insurer is the financial strength of the company," said Joseph Belth, editor of the Insurance Forum newsletter.
The best way for consumers to check on an insurer's health is through its credit rating, which gauges the insurer's financial strength and ability to pay claims.
Belth said there had been renewed interest recently in credit ratings because of the weak economy, the December filing for Chapter 11 by insurance giant Conseco Inc. and a bevy of downgrades by rating firms.
Last year, more insurers' ratings were downgraded than upgraded by rating agency A.M. Best. One day in September, Fitch Ratings downgraded 35 life insurers in North America, or 42 percent of those it rates. And Standard & Poor's downgraded 24 U.S. life insurers last year, its highest in a decade, compared with eight in 2001.
Life insurers have been hurt by investments in stocks and the bonds of high-profile failures such as WorldCom Inc. and Enron Corp., said Manfred Nowacki, A.M. Best group vice president.
Insurers selling variable annuities got burned by guarantees made in the late 1990s to provide a minimum death benefit no matter what happened to stock investments, Nowacki said. Those guarantees came back to haunt insurers when the market tanked and forced them to set aside more money in reserves.
Still, experts say, the insurance industry is healthy overall.
Belth argues that it's not the industry, but individual companies that a consumer should worry about. Experts said consumers should check an insurer's rating with at least three agencies to check for warning flags.
The five major rating agencies are A.M. Best, Fitch Ratings, Moody's Investors Service, Standard & Poor's and Weiss Ratings Inc. The first four are paid by insurers to conduct a rating, and the ratings are available free online.
Weiss makes money by selling its ratings to interested parties. This month Weiss it is offering its $7.95 ratings for free at www.weissratings.com.
Belth's newsletter publishes an annual ratings issue for $20 at www.insuranceforum.com.
The agencies use an alphabet system to rate companies, although the meanings vary. That can make it difficult to make comparisons.
"You can't go on your instinct of what A, B, C and D means," said Bob Hunter, director of insurance for the Consumer Federation of America. "It's important to read and understand the ratings."
Experts suggest that consumers stick with top-rated companies for life and other long-term policies.
