Evaluating Annuity Companies

There are all sorts of insurance companies I’d never do business with, for one reason or another.  Sometimes it’s because of the products, past experience or even financial strength.  I like to be confident about the recommendations I make and 19 years in the business have taught me a thing or two.

Recently, I learned that one of the companies I don’t prefer is under review by AM Best with the potential for their financial ratings to be downgraded.  I don’t delight in people feeling pain but it was vindication after telling dozens of people to stay away from the company for various reasons.  No one wants to hear that the company they trusted with safe assets is under review for not being as safe as promised.

I had wanted to do a newsletter and podcast about the products from this company for a long time but news of financial trouble was almost too good to ignore.  So I called Ashok Ramji, the man who started the podcast with me.  He had the same concerns with this company and we both knew agents that sold millions worth of the company’s annuities.  Ashok reminded me of something very important.  We, as agents, are restricted from using financial strength ratings as a negative point to sell against any company.  In other words, we can’t trash a poorly-rated company in order to sell something from a stronger company.

Plus, having such a negative piece of information about one specific company could bring negative attention to my website.  Ashok had a better idea; use this opportunity to highlight the things people should consider to find the best companies to use.

A lot of people have asked where Ashok went and my answer has been the same.  He didn’t go anywhere but instead wanted to take a step back.  This is my website and my content but he had inherited some responsibility for creating the content and that wasn’t his intention.  Plus, it became really hard for two busy people to find an acceptable time each week to record something.  So now he is a contributor when things work out and he joined me for this episode and you can find it by clicking here.

Since it is important to know why we recommend certain companies, it was important to document what we have learned over the years.  Detailed information you’ll find in the podcast is below:

  1. A look at financial ratings.  What do they mean and how can you compare companies?  Some companies are only rated by one major agency while others are rated by all four.  This makes a difference when you look at how companies are ranked for financial strength.
  2. How to evaluate an insurance company’s investments.  Some companies have lower ratings because they invest in lower rated bonds that may pay higher interest.  This is a really big deal for anyone who doesn’t mind a little extra due diligence to make sure an annuity is as solid as can be.
  3. Risk-based capital ratio.  Regulators set a minimum amount of reserves that must be on hand to handle fluctuations in the business cycle.  It depends on the size of the insurance company and the level of risk the company holds in its investment portfolio.  It is directly related to the two factors above.
  4. Much of this information is available to consumers via the National Association of Insurance Commissioners website.  You can search for any company at this link:  https://content.naic.org/cis_consumer_information.htm
  5. My last point was to tell everyone why I believe customer service to be very important when you choose a company to deal with.  This is something you’ll never know until you figure it out for yourself but that’s where our experience comes in.  We aim to direct you to companies that value your business and prove it by the way you are treated.

This is not a subject that everyone will absorb right away, nor is it even something that many people worry about.  The hope is that whichever agent you decide to work with has considered all of these factors before making a recommendation.  This is something both Ashok and I do on a regular basis and we like to offer it to those who don’t mind a little extra homework.

Best of luck and please reach out if there’s anything I can do to help.

Bryan