Rating agencies are independent, third-party companies that analyze and rate the financial health of many different types of organizations—including governments and entire countries.
A.M. Best, Standard and Poor’s, Moody’s and Fitch are some of the well known rating agencies.
These companies have received unwelcome exposure in the wake of the recent financial crisis. Quite a few analysts and journalists argue that the rating agencies played a key role in the developments that led to the financial meltdown. Many of the mortgage securities that proved to be toxic were given the highest ratings by the agencies.
Regardless of the outcome, the rating agencies continue to play a key role in assessing the financial health of insurance companies that offer annuities, and the ratings assigned by these companies serve as key data points for annuity buyers.
The ratings typically consist of various combinations of letter grades that range from A to D (A.M. Best ranges to F). Similar to academic grades, the A end of the range suggests exceptional, superior or highest claims paying ability. The lower end of the range (C through F) should be considered a non-starter by any annuity buyer. The bottom line is that you only want to buy from a company that is at the top of the class.
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