Annuity Ratings and Carrier Evaluation: How to Judge the Company Behind the Contract

Why the Company Matters as Much as the Product

Here's something we tell everyone who's shopping for an annuity: the product is only as good as the company behind it.

A brilliant FIA with a 7% roll-up rate and a generous doubler means nothing if the carrier can't pay you in 20 years. A MYGA offering the highest rate on the market is a problem, not a feature, if the company is stretching itself thin to attract deposits.

An annuity isn't like buying a television. If the TV manufacturer goes under, you still have the TV. If the annuity carrier fails, your guarantee is only as strong as the safety net behind it. So before you compare cap rates and rider fees, you need to evaluate the company — and the most reliable way to do that is through financial strength ratings.

We know, we know. "Financial strength ratings" sounds about as exciting as reading the instructions for assembling flat-pack furniture. But this is one of those cases where boring information prevents expensive surprises. Bear with us.

The Four Rating Agencies

Four major agencies evaluate insurance company financial strength. Each has its own scale, methodology, and quirks.

AM Best — The Gold Standard for Insurance

AM Best has been rating insurance companies since 1899. They focus exclusively on the insurance industry, which makes their assessments particularly relevant for annuity buyers.

AM Best Financial Strength Rating Scale:

Our recommendation: For annuities, prioritize carriers rated A- or higher by AM Best. This covers the vast majority of reputable carriers and provides a meaningful margin of safety.

S&P Global Ratings

S&P rates insurance companies using a scale similar to their corporate bond ratings.

S&P equivalent to AM Best A-: An S&P rating of A- or higher is roughly comparable.

Moody's Investors Service

Moody's uses a slightly different naming convention.

Fitch Ratings

Fitch uses the same scale as S&P (AAA through D).

The COMDEX Score: The Composite View

Not all carriers are rated by all four agencies. The COMDEX score solves this by converting each agency's rating into a percentile and averaging them. A COMDEX of 90 means the carrier is in the 90th percentile across all agencies that rate it.

COMDEX guidelines:

• 90+ — Excellent carrier
• 75-89 — Strong carrier
• 60-74 — Adequate carrier
• Below 60 — Proceed with caution

COMDEX is useful because it smooths out the quirks of any single agency and provides a single number for comparison. It's not a rating itself — it's a composite index.

Beyond Ratings: What Else to Evaluate

Financial strength ratings are the starting point, not the finish line. Here's what else to look at:

Risk-Based Capital (RBC) Ratio

The RBC ratio measures how much surplus capital a carrier holds above the minimum required by regulators. Think of it as a financial cushion.

• 200% — Minimum acceptable (company action level if below)
• 300-400% — Solid
• 400-500%+ — Very strong

A carrier with a 450% RBC ratio has 4.5 times the minimum required capital. That's a lot of cushion.

Company History and Track Record

How long has the carrier been in business? Have they survived previous economic crises (2008, 2020, 2022)? Have they ever reduced credited rates below initial guarantees? Have they been involved in regulatory actions?

A carrier that has operated for 100+ years and weathered multiple economic storms is a different risk profile than a 10-year-old carrier that has only operated in favorable conditions.

Parent Company and Ownership

Many annuity carriers are subsidiaries of larger financial groups. Understanding the parent company's strength matters — a struggling parent might drain capital from the insurance subsidiary, while a strong parent provides an additional backstop.

Product Reputation

Do the carrier's existing policyholders report positive experiences? Does the company honor the spirit of its contracts, or is it known for finding technicalities to reduce benefits? Online reviews have limitations, but persistent patterns of complaints (especially with state insurance departments) are worth noting.

State Insurance Department Complaints

Every state insurance department publishes complaint data. A high complaint ratio (complaints per dollar of premium written) can indicate customer service problems, claims handling issues, or aggressive sales practices.

State Guaranty Associations: The Safety Net

Even with careful carrier selection, things can go wrong. That's where state guaranty associations come in.

How They Work

Every state (and U.S. territory) has a guaranty association that protects annuity owners if an insurance company becomes insolvent. All licensed insurance companies are required to participate and fund the association.

If a carrier fails:

1. The state insurance commissioner takes over (receivership)
2. The guaranty association assesses other insurance companies operating in the state to fund the shortfall
3. Policyholders are protected up to the state's coverage limit
4. In most cases, contracts are transferred to a healthy carrier and continue with minimal disruption

Coverage Limits by State

Most states provide coverage of $250,000 per annuity contract owner per failed carrier. Some states offer more:

• California: $250,000 for annuity benefits
• Florida: $300,000 for annuity benefits
• New York: $500,000 for annuity benefits
• Texas: $250,000 for annuity benefits
• Washington: $500,000 for annuity benefits

Your state of residence determines which guaranty association covers you, regardless of where the insurance company is domiciled.

Practical Implications

If you're considering a large annuity purchase (say, $500,000), you might split it across two carriers — $250,000 each — to stay within guaranty association limits at each carrier. This is the annuity equivalent of not exceeding FDIC limits at a single bank.

Important caveat: Insurance companies are not allowed to use guaranty association coverage as a selling point. You won't see it mentioned in marketing materials or sales presentations. But it's a real protection that you should be aware of and factor into your planning.

How to Use Ratings When Shopping for Annuities

The Practical Framework

1. Set a minimum rating. We recommend A- (AM Best) or equivalent. This eliminates carriers with meaningful financial concerns.

2. Compare within the acceptable range. Once you've cleared the safety threshold, compare rates, features, and riders among qualified carriers. An A- carrier offering 5.2% is worth comparing to an A+ carrier offering 4.8%.

3. Consider the term. For short-term products (3-5 year MYGAs), you might accept a slightly lower rating (B++) in exchange for a meaningfully higher rate — the risk window is shorter. For long-term products (10+ year FIAs with income riders), stick with A- or higher — you're trusting this company for decades.

4. Diversify carriers for large amounts. Above $250,000, consider splitting across multiple A-rated carriers. This provides both carrier diversification and guaranty association diversification.

5. Recheck periodically. Ratings change. A carrier that was A+ at purchase could be downgraded later. While this doesn't require immediate action, it's worth monitoring.

The Rate vs. Rating Trade-Off

Here's the tension: lower-rated carriers often offer higher rates. An A- carrier might offer 5.5% on a 5-year MYGA while an A++ carrier offers 4.8%.

Why? Lower-rated carriers need to attract deposits to grow, so they price more aggressively. They may also invest slightly more aggressively, generating higher returns (and higher risk). The higher rate compensates you for accepting more carrier risk.

Is the trade-off worth it? For amounts within your state's guaranty limit and reasonable time horizons, it often is. But it's a conscious decision, not a default. Know what you're choosing and why.

The Bottom Line

The company behind the annuity matters. A lot. An amazing product from a shaky carrier is a gamble, while a solid product from a strong carrier is a foundation.

Financial strength ratings aren't perfect — they're backward-looking, they can change, and they don't capture everything. But they're the best tool available for evaluating the company that will hold your money for the next 10, 20, or 30 years.

Check the ratings. Look at the RBC ratio. Consider the history. And if you're depositing more than your state's guaranty limit, split it up. A few hours of due diligence now can prevent a lot of stress later.

Because an annuity guarantee is only as strong as the company making it. Make sure that company is strong.