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Rating Agencies
Another measure of safety for the annuity buyer and those who sell annuity products is provided by independent rating agencies. Over the past century, there has been one dominant company that has rated insurance companies: A.M. Best. Typically, the practitioner has looked to A.M. Best to provide critical information regarding the solvency and profitability of the various insurance companies. In 1986 Moody’s and Standard & Poor’s began evaluation insurance companies and assigning what they called “claim-paying ratings.” Yet another agency that later joined the mix is Fitch (formerly Duff & Phelps).

In general, the rating agencies attempt to evaluate the current ability of an insurer to pay its claims. A number of quantitative and qualitative tests are conducted to make this determination. Ratings are typically assigned for a one-year period; however, each of the agencies reserves the right to change a rating at any time based on the operation results of the insurer.

It is important to emphasize that the insurance industry remains one of the most highly regulated and scrutinized industries in the country. In addition to all of the state regulatory requirements, the industry must also contend with the growing debate over federal regulation of the industry. All of this attention and regulation provides the consumer with a tremendous amount of information to evaluate the insurance industry and its safety.

Last Updated: 9/23/2012 10:05:00 PM