What Are Annuity Ratings?
October 26, 2022 | Tom Peterson
When you shop at Amazon or Target, or visit restaurants and retail businesses, ratings help you decide what and where to purchase. This is also important when making impactful decisions, such as selecting a health plan or making a financial decision. Before investing in an annuity, it’s a good idea to know and understand the annuity ratings.
Why Are Annuity Ratings Important?
Annuities are not backed by the federal government, although states provide coverage to a certain degree. Therefore, it is crucial to choose who you buy from carefully. The point of the annuity is to have or gain money, not lose money.
Read More: What is a Fixed Annuity?
Insurance companies that sell annuities earn ratings. Those ratings are based on how the insurance company is operating financially. Like other businesses where ratings help you decide where to eat or what to purchase, an insurance company’s ratings can serve as a guide.
How Are Ratings Determined?
There are generally at least 5 steps companies utilize when determining annuity ratings:
- Compile information – Companies examine submissions of public and proprietary information like capital structure, key executives, loss provision reports.
- Perform Analysis – Companies perform analysis of the financial information and report the analysis to a committee.
- Determine Credit Rating – The internal committee that ensures an accurate rating is given based on their process.
- Disseminate Credit Rating – The public is informed about the rating through publications.
- Monitor Credit Rating – The rated organization is rechecked consistently to ensure the rating is still accurate.
What Do Annuity Ratings Mean?
Ratings can range from AAA to D. At Twin City Underwriters, we choose to work with top-rated companies with AAA, AA, A or A- ratings. This gives you a strong assurance that the company will remain in operation, offer competitive interest rates, and maintain the contract they set with you.
Read More: Understanding Multi-Year Guaranteed Annuities
If an insurance company gets a lower rating, it usually works to improve its operations to earn a higher rating over time. Therefore, we closely monitor the market for changes and up-and-coming options.
You’ll also want to be aware that various rating companies and systems are utilized to assess an insurance company’s rating. While the information gathered to assess a rating is objective and said to be transparent, there is still a subjective piece to be aware of, partly because the ratings tend to be forward-looking. Therefore, choosing a rating company with a history of accurate ratings is essential. Twin City Underwriters focuses on reliable rating companies like AM Best’s and S & P Ratings.
The insurance industry is highly regulated, but it can pay to do your research. We at Twin City Underwriters want to partner with you in that process. Individualized attention to a client’s personal situation and needs are important, which is why we take the time to understand you and your goals. We can help you understand annuity basics to determine whether an annuity is the right investment option for you.
Are you ready to have a meaningful discussion about your financial needs? Call or email TCU today to set up a free, no-obligation appointment with one of our dedicated agents.
Call Twin City Underwriters to learn more: 651-488-0172 or 800-507-6778.