What Are Life Insurance Ratings?
Life Insurance Ratings are designed to give an overall view of the financial strength and stability of a particular life insurance company. There are a number of agencies that calculate and provide ratings of life insurance companies.
The mathematics of rating procedures can be quite complex, but calculating a rating means studying various qualitative and quantitative aspects of a life insurance company, including its balance sheet, business profile, and operating performance.
These parameters are compared to those of other life insurance companies and industry standards. Life insurance companies are also assessed on the basis of their philosophy, management, and operating plans.
Many Life Insurance Ratings are given in terms similar to school grades. They may range from a high grade of A++, which is considered superior to a grade of F, which is assigned when an insurance company is in liquidation. The particular letters and their meanings do vary among ratings agencies. Determination of a rating often involves analysis of at least five years of a company’s financial history. Some ratings agencies won’t give a rating to a company with less than a certain number of years of experience. Insurance policy buyers and investors will have to use their own discretion in regard to those companies, or find a ratings company that has chosen to rate it based on fewer years of data.
Consumers must in some cases be skeptical of Life Insurance Ratings, because there have been cases where insurance companies pay for the evaluation by a ratings agency, causing the ratings agency a conflict of interest.
There have also been cases of insurance companies trying to prevent ratings agencies from releasing ratings. It is important to take into account more than one rating if possible before deciding to purchase a life insurance policy or before deciding to invest in a particular life insurance company.
The major Life Insurance Ratings agencies evaluate such things as which other types of insurance a particular life insurance company offers, its geographic location, and how factors pertaining to the country or local area in which a life insurance company resides could affect operations and risk.
In general terms, the lower the risk profile of a particular life insurance company, the higher its rating. “Low risk” indicates that a company has a favorable operating environment, is competitive with its peers, and is regulated in such a way that solvency is likely to be maintained.
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