Check insurer's rating when buying policy

STAYING AHEAD

August 29, 1993|By JANE BRYANT QUINN

New YORK -- If you're buying an annuity or life insurance policy, or thinking of switching from one you have now, insurance company safety ratings matter more than ever. On average, the industry is somewhat stronger financially than it was a year ago, says Martin Weiss, head of the rating organization, Weiss Research in West Palm Beach, Fla. But many individual insurers face two increasing risks.

Money-losing commercial real estate is a "growing and dangerous problem," especially for some large insurers who lent heavily to developers, says Michael Albanese, assistant vice president for the A.M. Best Co., the oldest insurance rating organization.

A longer-term strategic problem is demographic decline. The birth rate dropped in the late 1960s and 1970s, which means there are now fewer young adults to buy life insurance.

To replace those lost sales, insurers have turned to investment products -- chiefly annuities -- but that's a smaller and more competitive market. "This is a shrinking industry," Albanese says. "A company may be reporting strong profits from life-insurance policy renewals, but if it's not putting enough new business on the books, it's facing longer-term difficulties."

Five different rating companies measure the soundness of insurance companies. A.M. Best, Standard & Poor's and

four-year-old Weiss Research cover virtually all of the industry; Moody's and Duff & Phelps generally cover only those companies willing to pay $15,000 to $32,000 for ratings.

This proliferation can be confusing to consumers, especially when their insurance agents are less than candid about what the ratings mean. Each rating company has its own evaluation system. All but Weiss make heavy use of the letter A, even for companies down in rank. An agent who fails to put a rating in context can mislead you as to the rater's intent.

Take the Travelers Insurance Co. of Hartford. Both Standard & Poor's and Duff & Phelps give it an A-plus. That sounds terrific unless you know that for both raters, it's the fifth ranking down. It represents "good" or "average" financial security but falls below the "excellent" or "superior" class.

A.M. Best rates Travelers A-minus, demoted from an A last year. A-minus is Best's fourth rank down; still, it carries the verbal designation "excellent." Moody's gives Travelers a Baa1 (its eighth rank down, called "adequate"); Weiss gives it a D-plus (its tenth rank down, verbally designated "weak").

One salesperson might tout you onto Travelers by highlighting its two A-plus ratings; another might warn you off, by waving its Baa1 and D-plus. What's a buyer to do?

First, check out all the ratings. Press the agent to give you the full list; in most cases, it will include at least A.M. Best, S&P and Weiss. Find out what the ratings mean and get the raters' own short, written summaries of the insurer's financial condition. Don't rely on the insurance company's version of the rater's report.

If you're not sure you're getting all the dope, mail $10 to The Insurance Forum, P.O. Box 245, Ellettsville, Ind. 47429, and ask for the Special Ratings Issue. This splendid compendium lists (and explains) all the ratings of 1,442 life and health insurance companies.

This is the first year that Forum editor Joseph Belth has included newcomer Weiss Research in his annual ratings list. Weiss is the industry's hardest marker. It's also the only service that noted the weakness of the failed Mutual Benefit Life, as well as some other toppled companies, at least a year in advance.

The venerable A.M. Best, criticized in the past for handing out too many A-pluses, has, for the second year in a row, made greater distinctions among its top categories. Of 221 insurers rated A-plus last year, 66 dropped below that rank; 67 insurers similarly lost their A ranking.

Belth suggests that conservative buyers of new policies shop from his list of highly rated insurers. It's a tougher call if you already own a policy and your insurer's ratings slip. You'd probably want to risk a slightly lower rank rather than suffer the considerable costs of dropping an old policy and picking up a new one. Not many insurers actually fail.

3' 1993, Washington Post Writers Group

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