It can be overly confusing choosing the right life insurance company to apply to, especially when they all claim to be the best at what they do.
Fortunately, third parties like Standard & Poor’s make it much simpler to distinguish whether or not an insurance provider is actually up to par.
Standard and Poor’s helps customers choose the right life insurance provider by investigating the inner workings of an insurer to make certain they are likely to hold up to their reputation and make good on their promises.
In this guide, we’ll talk about why you should care about Standard and Poor’s Company and explain how you can use their ratings to select the most secure life insurance provider for you and your family.
About Standard & Poor’s Rating Company
Scrolling through your phone or flipping through channels, you’re bound to find ads for insurance companies.
Life insurance companies are among the best, tugging on your heartstrings and telling you how vital it is to protect your family with life insurance.
And every one of those ads undoubtedly tells you their coverage is unmatched, their premiums are as affordable as they come, and their company has a legacy of excellence.
While the first part of their strategy is truthful as life insurance is one of the most worthwhile purchases you can make to protect your loved ones, the second part might not be.
To ensure a company measures up to its commitments, you need to rely on more than its marketing.
Enter Standard and Poor’s Company.
S&P is an independent credit rating agency who monitors financial institutions, banks, insurance companies, and more to research how well a company is operating under the hood.
They report back with a simplified rating, based on a propriety table, to make it easy for advisors and consumers to better understand their financial strength.
S&P is one of the four main rating agencies, which also include:
Standard & Poor’s has been around in excess of one and a half centuries, making them the longest standing credit analyst of the major four.
History of Standard and Poor’s
S&P found its beginnings in 1860. That year, Henry Varnum Poor published a book entitled History of Railroads and Canals in the United States, which focused on evaluating railroad companies’ finances.
Over the next decade, Poor began to publish annual guides on these companies.
Fast forward to 1906, when a man by the name of Luther Lee Blake created the Standard Statistics Bureau, which detailed the operations of non-railroad companies.
In 1941, Poor’s Publishing and Standard Statistics Bureau were acquired and merged to become Standard and Poor’s Corporation.
Since then, the company was acquired by McGraw Hill and continues to produce detailed assessments of companies across market sectors that are vital to investors and insurance shoppers alike.
How Standard and Poor’s Company Rating System Works
Standard and Poor’s determines the ratings they award by sifting through trillions of dollars in new debt instruments, researching and evaluating thousands of companies’ financial plans, business models, corporate responsibilities, and performances.
What this all translates to from the consumer side of comparing companies for their own personal and business needs is a simple, easy to understand output of scores, or ratings, which align a company into a category which most accurately represents its current and possible future state.
Here is an example of what their ratings table looks like:
|“AAA” – Extremely strong||“BB+” – Highest Speculative Grade|
|“AA” – Very Strong||“BB” – Less Vulnerable|
|“A” – Strong||“B” – More Vulnerable|
|“BBB” – Adequate||“CCC” – Currently Vulnerable|
|“BBB-” – Lowest Investment Grade||“CC” – Highly Vulnerable|
|“C” – Currently Highly Vulnerable to Default|
|“D” – Default|
*other ratings may see an additional +/-
These long-term credit ratings tell investors and consumers how likely a company is to fulfill its financial commitments.
Anything that falls between AAA and BBB is considered to be an investment grade, as depicted in the table. Anything below a BBB is considered speculative.
Additionally, you may encounter scores of R, SD, and NR. A company who receives an R is under regulatory supervision by its lenders.
A company receiving an SD has explicitly defaulted on selective commitments, and a company with a rating of NR has not been rated by S&P.
Although ratings are primarily based on their ability to pay back creditors, it translates to their commitment to keeping financial promises to customers, which is key to a life insurance policy.
Additional S&P Ratings
In addition to their long-term investment ratings, Standard and Poor’s releases short-term ratings ranging from an A-1 (strong commitment to fulfilling obligations) to A-2, A-3, B, C, and D.
With each declining letter, the company’s stability, and likelihood to meet commitments decreases.
A “C” rating, for instance, indicates a company’s ability and likelihood to meet its obligations are completely up to circumstance. A score of “D” indicates a company has defaulted on a payment or filed for bankruptcy.
S&P not only produces the credit scores above, but also governance scores.
These scores convey to investors how stable a corporation’s management is to suggest the level of risk associated with investing with them.
These ratings come in the form of both Corporate Governance Scores and Governance, Accountability, Management Metrics, and Analysis (shortened as GAMMA).
All of these scores combine to paint a holistic picture of a company’s structure.
How to Use Standard and Poor’s Credit Ratings
When compared to the other major independent agencies who rate life insurance companies, you can see the consistency of using alphabetical (or in some cases, alphanumeric) characters to differentiate both financial strength and solvency, but what the letters mean vary from one to the next.
With S&P, even a “BB+” is considered, to some extent, speculative.
Like the other rating companies, Standard & Poor’s recommends you to only use their ratings as an indicator and small portion of your own research.
However, it has been noted over time the ratings obtained by S&P tend to have a very high correlation with their awarded rating.
Companies who drift down the scale tend to be those who are in some kind of financial circumstance, whereas those who are upgraded or remain at the top have truly earned their marks.
Outside of the United States and the U.S. companies it rates, Standard & Poor’s is also used in more than 20 other countries monitoring securities, institutions, and companies alike.
If your research entails companies who are multinational, do note that they may have different ratings depending on what division or department of the company you are viewing.
In addition, companies who do more than just life insurance may have separate ratings for each line of insurance they offer, so consider this when looking at each type they offer.
S&P has done a fantastic job over the years in assessing the risks of insurers, as well as the probability they will remain strong and paying on time.
This is crucial when you are considering purchasing life insurance because it’s a product with little to no immediate gratification, and an expectation of payout sometimes decades in the future.
While it’s not the only indicator, Standard and Poor’s credit ratings can definitely aid in manual evaluations of insurance companies and choosing who to place your trust and your business with in the long run.
As you shop for the best life insurance policy for you, it’s always wise to do your research.
Not only do you need to look at a company’s policies and premiums, but also their consistency.
Checking the S&P, A.M. Best, Moody’s, and Fitch Ratings is an excellent place to start.