What Annuity Guarantees Really Mean

Beyond the Letter Grade: Other Things to Check

A.M. Best ratings are the starting point, not the complete picture. Here are additional factors that indicate carrier strength:

COMDEX Score

A composite index that ranks an insurer’s ratings across all agencies on a 1–100 scale. A COMDEX of 90+ means the carrier is rated higher than 90% of all rated companies. Useful for comparing carriers that have ratings from multiple agencies.

Risk-Based Capital (RBC) Ratio

A regulatory metric comparing actual capital to required minimum capital. An RBC ratio above 300% indicates strong capital reserves; above 500% is very strong. State regulators can intervene when the ratio falls below 200%. You can request this from the insurer or find it in their annual statement filed with the state.

Years in business

A carrier with 100+ years of history has survived the Great Depression, multiple recessions, and the 2008 financial crisis. That track record has meaning. Newer carriers may be well-capitalized and well-managed, but they have not been tested by a severe economic downturn.

Total assets under management

Larger carriers (tens of billions in assets) generally have more diversified investment portfolios, stronger negotiating power with reinsurers, and more stable operating platforms. Size alone does not guarantee safety, but it provides a broader base of stability.

Investment portfolio quality

Insurers publish the composition of their investment portfolios in annual statements. A carrier heavily invested in investment-grade corporate bonds and government securities is managing risk differently than one concentrated in below-investment-grade bonds, commercial real estate, or alternative investments. If you are considering a larger purchase, reviewing the insurer’s investment mix is worthwhile.

Ownership and parent company

Some carriers are subsidiaries of larger financial groups. A B++ rated subsidiary backed by an A-rated parent company may have access to capital support that its standalone rating does not fully reflect. Conversely, a high-rated carrier owned by a private equity firm focused on extracting value may warrant caution regardless of the current rating. Understand who owns the company and what their long-term interests are.

How to Evaluate a Carrier Before You Buy

1. Check the A.M. Best rating. This takes 30 seconds at ambest.com. If the carrier is rated below B+, stop here unless you have a specific, informed reason to proceed.
2. Ask your agent for the COMDEX score and RBC ratio. A good agent will have this information readily available. If they do not, or if they deflect the question, that is a red flag.
3. Look up the carrier’s history. How long have they been in business? Have they been through a downgrade? Were they involved in any regulatory actions? A simple web search often reveals useful context.
4. Understand the rate in context. If a carrier is offering a rate significantly above the market average, ask why. The answer may be legitimate (new market entrant building a book of business, competitive pricing strategy) or it may signal that the carrier needs to attract deposits to shore up reserves. Either way, you should know.
5. Diversify across carriers. Do not put all of your annuity savings with a single insurance company, regardless of its rating. Spreading across 2–3 carriers with different risk profiles is the single best risk management strategy available to you.
6. Match carrier strength to product duration. If you are buying a 3-year MYGA, a B++ carrier may be a reasonable risk for a meaningful rate advantage. If you are buying a SPIA that must pay you for 30 years, an A+ carrier provides much more certainty over that time horizon.

What Happens If an Insurance Company Gets Into Trouble?

Insurance companies do not fail overnight. The process is gradual and heavily regulated:

1. Rating downgrade. Rating agencies downgrade the carrier, signaling financial stress. This is usually the earliest public warning. Downgrades can trigger increased regulatory scrutiny.
2. Regulatory intervention. State insurance commissioners have broad authority to intervene when a carrier shows signs of financial distress. This can include requiring additional reserves, restricting new business, or ordering changes to investment strategy.
3. Conservation or rehabilitation. If the carrier’s condition worsens, the state may place it under conservation (temporary state control to stabilize operations) or rehabilitation (restructuring to return to solvency). During this period, policyholder benefits may continue, though surrenders and withdrawals may be restricted.
4. Transfer to another insurer. In many cases, a healthy insurer acquires the troubled carrier’s book of business. Policyholders are transferred with their contracts intact. This is the most common resolution for distressed insurers.
5. Liquidation (rare). In the worst case, the carrier is liquidated by court order. Policyholder claims are prioritized under state law and the state’s safety net mechanisms activate. Even in liquidation, policyholders have historically recovered a substantial portion of their benefits — but the process can take years and full recovery is not assured.

The key takeaway: the regulatory system provides multiple layers of protection before a worst-case scenario. Choosing a well-rated carrier significantly reduces the probability of ever reaching steps 3–5.

If you’re considering an annuity, it’s crucial to work with Annuity Pros to evaluate your goals, time horizon, and the specifics of each product type. The right annuity, used the right way, can make all the difference in your financial future.