Understanding Financial Ratings: A Guide for First-Time Buyers
Buying an annuity, life insurance, long-term care insurance, or disability insurance is not like buying something you can return. You’re giving money to an insurance company today in exchange for a promise that may last 10, 20, or even 40 years. That promise is only as reliable as the company behind it. Financial ratings exist to help you understand whether an insurer can actually pay claims, protect your money, and honor every contractually guaranteed benefit.
For first-time buyers, financial ratings can feel confusing, especially because each agency uses different letters and terminology. But the goal is simple: the higher the rating, the stronger the company. A financially strong insurer gives you peace of mind that your policy will still be there when you need it most.
The Main Rating Systems Explained Simply and Clearly
Each rating agency evaluates insurers differently, which is why you may see multiple ratings for the same company. Understanding the basics helps you avoid bad decisions based solely on high interest rates or flashy marketing.
A.M. Best – The Insurance Industry’s “Go-To” Rating
What it is: A.M. Best focuses specifically on insurance companies. Their entire system is built around evaluating how well insurers manage money, pay claims, and maintain long-term financial stability.
How to read the ratings:
- A++ / A+: Superior strength
- A / A-: Excellent strength
- B++ / B+: Good strength, but more vulnerable in downturns
- B / B- and below: Weak or poor; increased chance of financial trouble
- C, D: Extremely weak or already in supervision or liquidation
Why first-time buyers should care: A.M. Best is the rating most directly focused on your insurer’s ability to pay claims over decades. For long-term contracts like annuities and permanent life insurance, A.M. Best matters more than anything else.
Standard & Poor’s (S&P) – The Wall Street Perspective
What it is: S&P evaluates the credit strength and financial health of companies, similar to how they rate government bonds or major corporations.
Key ratings:
- AAA: Extremely Strong
- AA+, AA, AA-: Very Strong
- A+, A, A-: Strong
- BBB range: Good, but watch for sensitivity to economic stress
- BB range: Marginal
- B range and below: Weak to very weak
Why first-time buyers should care: S&P gives you a wider economic view of the insurer’s stability, which is especially useful during recessions or volatile markets.
Moody’s – Risk Focused and Conservative
What it is: Moody’s uses a bond-style rating scale. They’re known for being thorough and conservative with risk.
Key ratings:
- Aaa: Exceptional
- Aa range: Excellent
- A range: Good
- Baa range: Adequate
- Ba, B, Caa, Ca, C: Increasingly risky or distressed
Why first-time buyers should care: Moody’s ratings help you understand an insurer’s vulnerability to economic stress, investment losses, or poor management decisions.
Fitch Ratings – Another Global Credit Opinion
What it is: Fitch looks at how insurers handle risk, investments, and long-term financial obligations.
Key ratings:
- AAA: Exceptionally Strong
- AA: Very Strong
- A: Strong
- BBB: Good
- BB, B: Weak to moderately weak
- CCC, CC, C: Very weak to lowest
Why first-time buyers should care: Fitch adds another data point, helping you cross-check S&P and Moody’s for consistency.
KBRA – A Growing Independent Agency
What it is: KBRA is gaining traction because it provides transparent, modern credit evaluations.
General scale:
- AAA: Extremely Strong
- AA: Very Strong
- A: Strong
- BBB: Good
- BB: Moderately Weak
- B: Weak
- CCC / CC / C: Very weak to extremely weak
- D: Failed
Why first-time buyers should care: KBRA fills gaps when other agencies disagree or don’t rate a company. It adds clarity where needed.
Weiss Ratings – The Strictest of All
What it is: Weiss Ratings is known for being tougher and not funded by insurers.
Scale:
- B+, B: Good
- C+, C: Fair
- D+, D: Weak
- E+, E: Very Weak
- F: Failed
Why first-time buyers should care: Weiss is consumer-focused and often less forgiving. If Weiss calls an insurer weak, that deserves your attention.
How to Interpret Ratings Without Getting Overwhelmed
Instead of memorizing every letter combination, think of them in three categories.
- Tier 1: Safest for Long-Term Contracts
- These companies are ideal for annuities and permanent life insurance.
- A.M. Best: A- and above
- S&P/Fitch/KBRA: A- and above
- Moody’s: A3 and above
- Weiss: B or B+
- These are the insurers that can best weather recessions, rate changes, and industry stress.
- Tier 2: Middle-of-the-Road (Use Only With Caution)
- These companies may be stable today, but are more sensitive to downturns.
- Use only for short-term commitments.
- Tier 3: High Risk (Generally Avoid)
- Lower-rated insurers may offer attractive rates or bonuses, but the trade-off is higher bankruptcy or restructuring risk.
Why Ratings Matter Specifically for Annuities and Life Insurance
When you buy an annuity or life insurance policy, you’re essentially giving the insurer a lump sum in exchange for financial promises—income, growth, protection, or a death benefit. These benefits only work if the company remains financially stable for decades.
Types of products affected:
- MYGAs: Guaranteed multi-year interest rates
- FIAs: Principal protection plus index-linked growth
- DIAs: Income starting later
- SPIAs: Immediate income
- Life insurance: Term, whole life, universal life, indexed UL
Funding methods for these products:
- Traditional IRAs
- Roth IRAs
- 401(k) rollovers
- Cash, bank accounts, or brokerage accounts
- Roth conversions into Roth IRA annuities
If a company fails financially, your long-term retirement and legacy plan may be at risk.
The Annuity Expert’s Rule on A.M. Best Ratings
For long-term annuities and life insurance, we strongly recommend sticking with companies rated A- or better by A.M. Best. If a company is rated lower and you still want to buy from them, limit the term to five years or less. This keeps your risk exposure short.
Compare Companies By A.M. Best Rating
Helpful Tool: This table provides a snapshot of major carriers. For the most up-to-date scores and a comprehensive search, check our annuity company ratings.
Pros and Cons of Using Ratings as a Consumer
Pros:
- Helps you avoid unstable insurers
- Gives you a consistent comparison tool
- Protects your long-term benefits
- Acts as an early-warning system
Cons:
- Ratings are opinions, not guarantees
- Agencies don’t always agree.
- They don’t predict sudden market shocks.
- Strong ratings don’t automatically mean the product is right for you.
The most confident decisions come from evaluating ratings AND product features.
Who Absolutely Must Pay Attention to Ratings
- Retirees needing long-term annuity income
- Families buying whole life or IUL for wealth transfer
- High earners protecting their household income
- Business owners funding buy-sell agreements
- Anyone relying on a future death benefit or lifetime guarantee
Who Might Accept Slightly Lower Ratings
- Short-term MYGA buyers (five years or less)
- Small term life policies
- People who are using only a small portion of their savings
But even then, stronger companies are always safer when the cost difference is small.
Additional Insurance Solutions That Reduce Company Risk
Ratings are only one tool. You can also:
- Split money across multiple insurers
- Pair annuities with life insurance for long-term security
- Add LTC or disability insurance so you don’t drain retirement assets.
- Match product durations to financial strength levels.
These strategies spread your risk and protect your income.
How The Annuity Expert Helps You Use Financial Ratings the Right Way
We take the guesswork out by:
- Identifying your retirement or insurance goals
- Filtering for only strong-rated insurers
- Comparing dozens of products across the entire market
- Saving you money by comparing pricing, features, and guarantees
- Explaining any trade-offs in clear, simple terms
You get the safest options at the best possible price.
What You Should Do Next
If you’re considering buying annuities, life insurance, disability insurance, or long-term care insurance, don’t work through the rating systems alone. The Annuity Expert can help you understand which companies are financially strong and which products fit your needs.
Contact The Annuity Expert for free quotes to buy coverage from financially strong insurers. We’ll compare ratings, explain risks, and help you save money while protecting your future.
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Common Questions About Insurance Company Financial Ratings
Q: What is considered a good financial rating for an insurance company?
A: For long-term annuities and permanent life insurance, aim for A- or higher with A.M. Best. Strong S&P, Moody’s, Fitch, and KBRA ratings provide additional confirmation. A “Good” score from Weiss is also a positive sign.
Q: Should I ever buy from a company rated below A-?
A: Only if the product term is five years or less. Longer durations should stay with stronger A-rated companies because the promises last a long time.
Q: Why do different agencies often rate the same company differently?
A: Each agency uses a different rating philosophy. A company might appear strong on one scale and more vulnerable on another. This is why consistency across multiple agencies is more reliable than relying on a single score.
Q: Do financial ratings affect the rates I receive on annuities or policies?
A: Yes. Higher-rated companies may offer slightly lower credit rates but provide better long-term security. Lower-rated companies often offer higher interest to compensate for higher risk.
Q: Can a rating change after I buy my policy?
A: Yes. That’s why starting with stronger companies reduces the likelihood of being stuck with a downgraded insurer later. If downgrades do happen, we can help you evaluate whether moving your policy makes sense.