How do you determine the financial strength of an insurance company?
The problem arises when you go looking for a companies financial strength. Where do you start? There are 4 main rating companies:
Rating services do not use a universal scale.
S&P and Fitch are the most closely related both using a similar scale (AAA, AA, A, BBB, BB, B, etc). They both use + and – as modifiers within their scale as well. Moody’s on the other hand uses a fairly similar scale (Aaa, Aa, A, Baa, Ba, B, etc) but their modifiers are numeric with 1 being on the high end to 3 being on the low end. AM Best focuses a bit more on the + and – with their scale (A++, A+, A, A-, B++, B+, B, B-, etc). To access most of the sites and usually their rating scales or definitions you’ll also need to sign up. Yes, it’s free to do so but it’s just one more tedious step for someone doing the proper research.
There is a problem of crossover.
You look up your life insurance company or your disability insurance company and they are an A+. What does that mean? Well with AM Best it’s the second best rating you can get. That’s a superior rating. But if it’s S&P or Fitch it’s the fifth best rating you can get. With Moody’s that would probably be equivalent to an A1 rating. Of course it could be a problem if you mistook the superior rating of AM Best with the upper medium rating of Moody’s or the ‘credit may affect finance’ rating (that doesn’t sound too good) of S&P or Fitch.
To make matters worse, when you go online for an insurance quote they often won’t show you all the ratings. They might show you one or two and it’s up to you to understand what the rating is and put it in perspective. Insurance agents are notorious for this too. They will only show you the top rating. It is not unusual for life insurance company’s ratings to vary quite a bit from agency to agency.
The Comdex is not a rating system but is instead a composite of the ratings a company has received. The key here is that instead of focusing on the letter that is assigned to companies, Ebix Inc. focuses on the number or percentage of companies receiving each letter. They then correlate this into a percentile score on a scale from 1 to 100. The Comdex becomes a composite index that gives a company’s standing in relation to other companies that have been rated. It gives a universal scale on which to compare your life insurance and disability insurance providers.
I am unaware of any free or easy way that the public can access the Comdex system. But what you can do, is look up individual companies. Almost all insurance providers have information pertaining to their financial strength easily accessible on their websites, this will usually include a Comdex score. You can also request this information for your financial professional that you are working with. I have full access to the Comdex database. If you would like to learn more about a specific insurance company or how that company compares to other companies just ask and I will be happy to share that information with you.
To give you an example of how financial strengths might compare:
|Genworth Life Ins Co||AIG||MassMutual||Prudential Ins Co of Amer||ReliaStar Life – ING||MEGA Life & Health|
|AM Best||A (3)||A (3)||A++ (1)||A+ (2)||A (3)||B++ (5)|
|S & P||A (6)||A+ (5)||AA+ (2)||AA- (4)||A+ (5)||BBB- (10)|
|Moody’s||A2 (6)||A1 (5)||Aa2 (3)||A2 (6)||A2 (6)|
|Fitch||A- (7)||A- (7)||AAA (1)||A+ (5)||A- (7)||BBB+ (8)|