Who do you trust when you need to make a decision on where to place your business when buying insurance? While every insurance company will be quick to tell you everything positive thing about their company and products, using a third part, independent credit rating agency, like Moody’s, will be much more beneficial to you in the long run.
UNDERSTANDING MOODY’S CORPORATION AND WHAT THEY DO
Even if you selected the top companies by brand popularity, are you sure you’re getting the best deal with a reputable company? Moody’s can answer that question because they compile data on most major insurance companies in the U.S. and rate them based on financial strength, their ability to stay current on their bills and provide both
stable and sound products now and in the future. They take this data and attempt to simplify the company profile into a single grade, or rating, which is easy to compare from one insurance company or financial institution to the next.Moody’s is technically a credit rating agency, comprised of the Moody’s Investors Service and the Moody’s
Analytics divisions. They evaluate both national and global markets, the companies who make up the industries, and a long list of benchmarks which help to give a more clear indication of a company’s current and future success, and they break it down into something a consumer can understand at a basic level. All the data they take into
consideration creates a nice output each consumer can use to make a more informed decision. Here’s what their rating table looks like:
|Aaa||Exceptional credit, highest rating, lowest risk.|
|Aa||Excellent credit, very low risk.|
|A||Good credit, low risk.|
|Baa||Moderate credit, possible speculative concerns.|
|Ba||Substantial risk, speculative.|
|B||High risk, speculative.|
|Caa||In poor standing, very high risk.|
|Ca||In or near default, highly speculative.|
|C||In default, lowest rating, highest risk.|
Seeing insurance companies overall risk profile in an easy-to-read format like this can help when picking between two or more companies who seem, otherwise, to be very similar. A company can earn higher ratings by having a well-structured budget and balance sheet, a good cash flow statement, high regard to local and national regulation, large reserves and a strong and consistent business model with a successful track record of both business and management. Take note the differences in what each rating means. Although it is a familiar alphabetically-styled order, it is not the same as standard education grades where a “C” is average, a “B” is above average, and an “A” is top notch. Even a company who has been awarded a “Baa” does have something in its financial statements which point to speculation, whether it be its current assets, investment portfolio, or other factors.Moody’s Investor Services is the one responsible for issuing the individual grades or ratings for each carrier, where the Moody’s Analytics side focuses more on the broad markets, industries and overconfidence in the markets. They oversee tens of thousands of companies, both local and worldwide and utilize proprietary systems and metrics to award the ratings they do.As with any other rating agency, Moody’s does not claim their ratings to be the one and only factor to consider when making a purchase, but they have a proven history of identifying the major gaps which tend to lead insolvent companies down the road to default. Always take into consideration every possible factor when choosing any insurer, including its history, its mergers or acquisitions, consumer reviews and even differences in products to make sure it aligns with your personal expectations.
OTHER RATINGS AGENCIES TO CONSIDER
Alongside Moody’s, there are three other major credit rating agencies who we, and the Comdex, consider for major insurance companies. They are:
• A.M. Best
• Standard & Poor’s
A company can elect to be reviewed by one, some or all, and ratings can fluctuate based on several factors, and at any time.