The Rating of Settlement Annuities
When determining the value of your annuity, an important consideration is the insurance company that stands behind the policy. When it comes to the factoring transaction of structured settlement payments, or selling of annuity payments, evaluating the life insurance company that is the policy holder of the annuity becomes a necessity as the overall health of the company determines the likelihood of their being around in the future to continue making payments and honour their obligation to the policy holder.
AM Best evaluates insurance companies by looking at the financial condition as well as the operating performance. Their quantitative evaluation is based on factors like profitability, leverage, liquidity, reserve adequacy and reinsurance. The qualitative evaluation looks at spread risk, diversification and quality of current assets, adequacy of policy reserves and surplus, capital structure as well as management experience. These ratings are quarterly and annual, and use a letter grades scale ranging from A++ to F.
Standard and Poor's (S&P) evaluates insurance companies by looking at operating performance, risk, management and capitalization. When examining an insurance company, they're evaluating the "claims-paying ability" as a means of measuring the health of the insurance company. Ratings used by S&P involve a letter grades scale that range from AAA to R.
Moody's evaluates insurance companies by looking their strength and/or weakness and the evaluation determines the likelihood of whether the company can meet their obligations to the policyholder. Factors in determining their rating include product lines, competitive positions, markets, company structure, performance, quality of investments, liquidity, surplus, earnings trends, as well as profitability. Ratings used by Moody's involve a letter grades scale that can range from AAA to C.
The structured settlement life insurance companies that currently provide structured settlement annuity policies include Pacific Life, MetLife, Liberty Life, Prudential Life, New York Life, Mutual of Omaha, Berkshire Hathaway, and American General. Both Allstate and John Hancock departed the market in 2013 as settlement annuity providers.
Note that when selling a structured settlement, offers presented are referred to as a discount rate. All settlement annuity buyers work in this manner, and determine the discounted present value based on the insurance company, markets, payment schedule, and other factors.
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