Are Life Insurance Company Downgrades on the Rise?
(Regular users click here to go directly to Recent Downgrades.) Life insurance company rating downgrades are up to 25 in Q4 of 2004 after reaching a recent low of only 12 in Q3 of 2004. Is this the financial downgrade bounce? If so, is this the beginning of a trend towards a steady rise to the degradation of insurance companies? Ratings downgrades typically reflect the effects of erosion of investment values and may signal a drop in an insurer’s reserves or profitability. In response to lower ratings, downgraded insurers are more likely to increase premiums to replenish these reserves, improve profits, and re-establish financial strength and claims-paying ability ratings. Thus, while buyers usually use ratings of financial strength and claims-paying ability to identify those insurers most likely to pay future death benefit claims, a decline in ratings can also signal increases in policy costs and corresponding increases in required premiums. Consequently, financial strength and claims-
