If you’ve been spending time researching life insurance companies, you’ve probably noticed that a number of independent agencies issue ratings for each of the providers. Fitch Ratings is one of the “Big Three” credit rating agencies – alongside Moody’s Investors Service and Standard & Poor’s. Here, how to use Fitch Ratings to help pick the right life insurance company to financially protect you and your loved ones.
Why life insurance company ratings matter
When shopping for a life insurance policy, ratings matter. The independent rating agencies help you, the buyer, understand the financial health of the issuing insurance company you’re considering, which is incredibly valuable when you realize there are hundreds of life insurance companies out there. Since you’re buying a policy that could stretch out over a 30-year term length, you want to choose a company that is financially viable now and has demonstrated a history of financial strength.
The higher the rating, the higher the rating agency’s assessment that the insurer will be around to take care of your family. We’re not saying you shouldn’t listen to your great aunt’s opinion on which insurer she recommends, but a rating agency provides an independent, objective opinion of financial strength and claims-paying ability.
The story behind Fitch Ratings
Fitch has been providing research and credit ratings to the financial services industry since 1913 when it was founded by John Knowles Fitch. The Fitch Group is owned by Hearst and is a global leader in financial information services with operations in more than 30 countries.
Fitch is the smallest of the Big Three credit rating agencies.
How Fitch reports on financial strength
Fitch Rating Reports provide full analysis on the credit profile of an individual issuer, including key rating drivers, rating sensitivities, financials with adjustments, and peers. The ratings of individual companies are updated annually.
When evaluating insurance companies, Fitch looks at a wide array of factors, including business profile, reinsurance, reserve capacity, catastrophe risk, financial performance and earnings, among many others.
Fitch Ratings fall into one of two categories: investment grade and non-investment grade. The break-out looks like this:
- AAA: highest credit quality, lowest default risk. Exceptionally strong capacity for payment of financial commitments; highly unlikely to be adversely affected by foreseeable events.
- AA+, AA, AA-: very high quality; very low default risk. Very strong capacity for payment of financial commitments; not significantly vulnerable to foreseeable events.
- A+, A, A-: high credit quality, low default risk. The capacity for payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to adverse business or economic conditions than is the case for higher ratings.
- BBB+, BBB, BBB-: good credit quality, low expectation of default. The capacity for payment of financial commitments is considered adequate, but adverse business or economic conditions are more likely to impair this capacity.; business or economic factors could adversely affect the company
- BB+, BB, BB-: Speculative. Elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time.
- B+, B, B-: Highly speculative. Material default risk is present, but a limited margin of safety remains.
- CCC+, CCC, CCC-: Substantial credit risk. Default is a real possibility.
- CC: Very high levels of credit risk. Default is a strong probability
- C: Default or default-like process has begun
- RD: Issuer has defaulted on a payment
- D: Defaulted
MassMutual’s Fitch rating
Haven Life Insurance Agency is backed and wholly owned by MassMutual. Each Haven Term policy is issued by our parent company, which boasts an AA+ rating from Fitch. That’s the second highest of 21 ratings (23 when including RD and D).
A Fitch press release from late 2016 reported, “MassMutual’s large and stable block of traditional cash value life insurance provides favorable credit characteristics including long-duration participating liabilities, relatively predictable cash flows, limited disintermediation risk, and limited guarantee provisions.”
Life insurance is a promise that’s only as good as the company that backs it. And thankfully, MassMutual’s policies come with a strong financial backbone
Other ratings to consider
There are several rating agencies out there – not to mention independent customer review sites– but four of them are most frequently used to gauge the quality of life insurance companies.
In addition to Fitch Ratings, A.M. Best, Moody’s, and Standard & Poor’s also review the industry and all have their own unique grading scales.
Ratings agencies aren’t the only place to seek reviews from. Knowing what people like you have experienced when buying and applying for life insurance can be enlightening in your decision-making process. Searching for reviews on sites like TrustPilot and Consumers Advocate should be an essential step of your decision-making process.
Using Fitch Ratings to find the right issuer for you
When it comes to buying life insurance, or any insurance for that matter, it pays to be selective. Ratings help you understand the financial health of the issuing company you’re picking which is an indicator of their ability to pay claims. It’s important.
Rachel Parisi is a freelance writer and attorney. She focuses her writing on insurance, financial services, and employee benefits. In her previous life, she served in the United States Air Force as a missile combat crew commander (think ‘Wargames’).
Financial strength ratings are as of June 7, 2019: A.M. Best Company: A++ (Superior; top category of 15); Fitch Ratings: AA+ (Very Strong; second category of 21); Moody’s Investors Service: Aa3 (High Quality; fourth category of 21); Standard & Poor’s: AA+ (Very Strong, second category of 21). Ratings are for MassMutual (Springfield, MA 01111) and its subsidiaries, C.M. Life Insurance Co. and MML Bay State Life Insurance Co. (Enfield, CT 06082). Ratings are subject to change.