Financial Strength Ratings – When High Rankings Don’t Matter
Financial strength ratings when high rankings don't matter when it comes to annuities. Hi there. I'm Stan The Annuity Man, America's annuity agent licensed in all 50 states. We will talk about annuity ratings, financial strength, and how to determine and look at those so you can make an informed decision on your terms and timeframe.
Regarding annuities, I always say, "Look at the Claims Paying Ability of that issuing carrier." Now, yes, Fixed Annuities are issued at the state level. Each state has a state guaranty fund. You can go to NOLHGA.com to check that out. But I want to talk about that annuity carrier, the ratings, whether it's B plus, B double plus, A minus, A plus, A plus, or A double plus. What does all that alphabet soup mean to you when you're making a decision or seeing quotes on my site? When you go to our site and run quotes on our annuity calculators, they're the best in the business, and you'll see all carriers. And people always say, "Well, who's your favorite carrier?" It's the one that provides the highest contractual guarantee for your specific situation. When you go to my MYGA feed, MYGAs are the CD-type annuity, the industry's version of a CD, and you can see the best live fixed rates for your state. You're going to see all types of ratings attached to these carriers. So, the question I always get is, "Wait a minute. I see a five-year or a two-year. I see a B plus rated or a B double plus rated. Stan The Annuity Man, America's annuity agent, tell me about that for a second."
The Four Primary Companies
Let's go backward. In the annuity industry, four primary companies rate annuity companies. Annuity carriers. There's Standard & Poor's, AM Best, Moody's, and Fitch. Now, on our site, we show AM Best not because we like AM Best; we just chose that because they rate most or all annuity companies, but also on our site is what's called Comdex rankings, which shows you all four of those rating servers, AM Best, Moody's, Standard & Poor's, and Fitch and a one to a hundred score, which isn't perfect. Still, it gives you a good gauge of these carriers' financial strength.
The Four Product Types
But I go deeper than that and do my own research. I look at each one of these companies from their solvency ratios and, getting into the meat of the matter and bringing up my old Morgan Stanley hat when I worked for Morgan Stanley looking at these companies. But I have two ways to look at companies from a financial strength standpoint. When it comes to lifetime income, there are four products. Single Premium Immediate Annuities, Deferred Income Annuities, Qualified Longevity Annuity Contracts, and Income Riders that are typically attached to Indexed Annuities. When I'm looking at that, I'm looking a lot at the Claims Paying Ability, the tail risk of that Income Rider. They're going to have to pay you for the rest of your life as long as you're breathing. Suppose it's joint life, as long as you and your spousal are breathing. Whichever one is alive, it's going to continue to pay.
Multi-Year Guarantee Annuities
I take a different approach from a financial analysis standpoint when I'm looking at those ratings because it's a lifetime income. You might live to 120. I have to ensure that that company can pay for all of those years, but that's completely different compared to when I'm looking at Multi-Year Guarantee Annuities, the annuity industry version of a CD. I'll give you an example. Let's say you want a two-year MYGA. You go to my site, hit the live MYGA feed, pull up your state, put in the duration, it pops the best rates, and up comes a B plus or B double plus company. You go, "Wait a minute. I want an A plus plus company." Well, you can get that. It's just not going to be at the highest level. So, the question you have for me is, "Can that company back up the claim?"
When I do my analysis, I'm looking at those two years. Can they back up those claims and those guarantees for those two years? Because after those two years, I can send the money back, or we can transfer it to another annuity, probably another carrier. So, if it's a two-year, three-year, four-year, or five-year, and at the time of this blog, check the date, I prefer you stay five years and in from a yield curve analysis. In other words, what's the sweet spot?
Where do I get the most bang for the buck? It's five years and in. Plus, we don't know where interest rates will go, up or down. Hopefully, they'll go up, fingers crossed. And if they do, you don't want money locked in long-term from a fixed rate standpoint. So, we're doing a lot of laddering. Two, three, four-year laddering, three, four, and five-year laddering. Example of that, you say, "Stan, what's a three, four, and five-year ladder?" Let's say you had $300,000 that you wanted to protect the principal and get an interest rate just like you would on a CD purchase. Then we do a hundred thousand in a three year, a hundred thousand in a four year, and a hundred thousand in a five year. That's a three, four, and five-year fixed rate ladder. But when I'm looking at those durations, and I'm making the recommendation and if it's made it to our live MYGA feed on my site, then we've done the analysis that we feel, and we're not perfect, but we're pretty darn close.
No, I'm serious. We do our homework to ensure they can back up those claims for that duration. If the question was, "Well, you're recommending this two-year or this four-year product, and maybe it's a B double plus product with a specific interest rate for a MYGA. Would you recommend that for a lifetime income product?" I don't know. Maybe. Maybe not. But with the lifetime income product, as I said previously, we're looking from a different lens. Can they back up the Claims Paying Ability for as long as you live? And if you live forever, can they do it? That's an entirely different analysis than looking at it from the standpoint, "Can they pay this interest rate for two years?"
Now, with all that being said, it's your money. Nod your head. So, regardless of what I say about Claims Paying Ability, regardless of what I say about analyzing, whether it's a Fixed Rate Annuity, a MYGA, or a lifetime income product, you have to feel comfortable with the Claims Paying Ability of the carrier from where you stand. I'll give you an example. I had a call the other day, and the gentleman said, "I went to your MYGA feed. I want a fixed rate, just like a CD." The MYGA's, Multi-Year Guarantee Annuities right now are beating CDs at the time of this blog. And I said, "That's fantastic, yes, but I don't feel comfortable doing the B double plus at the top. Even though it's a percentage point less, I still want to do the A plus plus carrier." "I still want to go with that."
That's fine. I'm not going to sit there and pound the table and say, "No, don't do it." It's your money. I will present the information, and we represent almost all carriers. I will show you everything, but at the end of the day, you might feel more comfortable with an A double plus carrier. And in this case, he did. Another call I got last week was similar. It was a five-year MYGA, and the person was looking at a five-year MYGA, and there were a couple B double plus carriers. He did not want that. He wanted an A plus carrier. And on my site, when you run that feed, you will see the ratings. He chose the A plus carrier. It was a little bit less, but that's what he felt comfortable with. Once again, it's your money.
What It Will Do, Not What It Might Do
You get to make the decision. But remember what I do. I represent pretty much every carrier. We quote all carriers for the highest contractual guarantee. My mantra is, "You own an annuity for what it will do, not what it might do, and the will do is the contractual guarantee." We're always going to show you the highest number. Now, that highest number and contractual guarantee might not be with a carrier you want to go with. That's fine. But I do act as a fiduciary. Every person in the financial business involuntarily should act like a fiduciary. I don't think it should be regulated. You either have morals, or you don't. So, in your best interest, I will show you all the carriers, and then we can discuss which one you feel comfortable with.
And if you ask me, "Hey, this is a B double plus. Tell me a little bit about it," I'll send you whatever information you need to know. I'll tell you what I specifically know based on my analysis and research, and then you can decide on your terms and your timeframe. But I want you to understand that it would be a perfect world if every single quote we ran, the A plus plus carriers would finish first. It would be easy. That's an easy choice, but it doesn't work like that. When you're shopping all annuities, all carriers for the highest contractual guarantee will be on our site. You might see B double plus, or you might see B plus, or you might see A minus, or you might see A or A plus or A double plus. We just need to talk about that. We need to talk about what that means for you. A lot of that recommendation and determination allocation and the proportion in your portfolio will be based on the type of annuity you are considering, whether it's a lifetime income stream product or a principal protection product.
That said, I encourage you to go to my site and book a call. We can have an in-depth conversation if you're looking at a specific carrier, and I will tell you the truth. I'll tell you if I don't think you should put your money there. I have a responsibility to do that, and I will do that. So, with that, do me a favor. Hit the subscribe button on our YouTube channel, and I'll see you on the next Stan the Annuity Man blog.
Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.