Annuity Carriers Rates or Ratings. What is More Important?
You are looking into buying an annuity or a new life insurance policy and you are now wondering, “What is more important, the rates or the ratings”? This is a question that we are hearing more and more every week here at Annuity Think Tank. It used to be a real simple answer back when interest rates were high and all carriers had excellent offerings with no reserve or capital issues, you simply went with the higher rated carrier. But now, with all time low interest rates, many of the top carriers are forced to cut back their offerings in order to keep their reserve and capital numbers up to keep their high ratings. Call it an insurance “Catch 22″. The higher the carrier rating, the more reserves they need to have to meet their large obligations and keep their rating. The last thing an A or A+ rated carrier wants is a downgrade.
However, the B+ rated carriers don’t have as big of a bulls-eye on their back and usually don’t have the large reserve and capital requirements as the large A+ rated carrier. Many times in these all time low interest rates, the best rates are clearly going to the lower rated (A- and B+) carriers.
So what exactly do the ratings even mean? The ratings agencies use the rating system to rank the insurance carriers ability to meet their on-going obligations. Meaning, the rating is supposed to indicate that the company has the proper assets and reserves needed to pay any and all claims. Is the rating always correct? Of course not. But for the most part, the rating agencies do a good job of basing their rating on what they can see.
Finally, there is some good news to consider when making your final decision. Since 2008, there have been over 400 banks that have failed. In that same time frame, we are not aware of any insurance company that has failed regardless of rating. So even a C rated insurance carrier was safer than any of those 400+ banks.