How Do You Determine the Safety of the Annuity Carrier?

How Do You Determine the Safety of the Annuity Carrier?
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Do I just take the selling agent's word that an annuity carrier is safe?

Annuity contractual guarantees are only as good as the company promising to back them up. That statement seems like common sense, but too many agents push substandard or low rated annuity carriers. It’s important to check on the financial stability of the annuity carrier you are considering, and to know what those resources are that can help you find the information you need.

Look at the annuity carrier financials to assess the health of the company.

Your first step in the due diligence process is to actually look at and evaluate the annuity company that will issue the policy. Every annuity carrier has a website that typically provides current financials, or allows you to contact them directly to access any information that you need to make a good decision.

There are 5 different services that provide current annuity carrier ratings information.

In addition to looking at the specific carrier’s financial numbers, you should also use companies that actually rate each annuity carrier for their level of safety. Currently, there are 5 specific ratings services that provide this information: A.M. Best, Moody’s, Fitch, Standard & Poors, Weiss. 

Ratings services can sometimes be confusing because most use a lettering scale along with plus and minus signs that indicate an annuity company’s current safety level.

There really is no uniformity or universal scale, and you have to do your homework on each service to understand their unique ratings scale. There is a company called Vital Signs that produces a ranking service called COMDEX, which is a compilation of A.M. Best, Moody’s, Fitch, and Standard & Poor's ratings.

They use a proprietary and easy to understand scoring system to determine carrier safety.

A.M. Best company was founded in 1899 by Alfred M. Best.

It is a global credit rating agency that has been focusing on the insurance and annuity industry for over 100 years. A.M. Best actually began assigning credit ratings in 1906, and is the first rating agency to use symbols to rate companies.

Moody’s Corporation  is the parent company of Moody’s Investors Service.

The company is a leading provider of research, risk analysis, and credit ratings of insurance companies and other financial institutions.

Fitch Ratings services have been providing credit ratings and research since1913.

The Fitch Group was founded by John Knowles Fitch.  In 1924, Fitch was the first to introduce the now familiar “AAA to D” ratings scale.

Standard & Poor's Ratings Services has been evaluating the creditworthiness of companies for over 150 years.

Standard & Poor's provides critical “Insurer Financial Strength Ratings” and “Insurer Financial Enhancement Ratings” that are essential in evaluating annuity carriers.

Weiss Ratings is somewhat of an outlier and contrarian when compared to other ratings agencies.

Dr. Martin D. Weiss founded his research firm in 1971, with Weiss Ratings services first being offering in 1987 after acquiring the bank ratings division of T.J.

Holt & Company. Weiss has developed numerous ratings models for the annuity and life insurance industry.

Vital Signs is a company that has developed a unique ranking system that they call COMDEX.

The COMDEX is not actually a rating in itself, but a compilation of ratings that the company has received from A.M. Best, Moody’s, Fitch, and Standard & Poor's. COMDEX is a score on a scale of 1 to 100, with 100 being the highest score.

In my opinion, COMDEX provides the best overall view because it looks at all ratings services. It’s not a perfect system, but it does give a broader view than just using one ratings service.

It’s important that you do as much due diligence as needed on the safety of your chosen annuity carrier. My advice is to use all of these listed resources to determine if the guarantees offered can be fully backed by the annuity company.

Do this before you buy!