An annuity is a promise from one insurance company. This page explains how to judge the company behind the promise: what the letter ratings measure, what the balance sheet shows, who owns the carrier, who regulates it, and the four things MAS checks before recommending one.
A fixed annuity has no market risk, but it does have one risk that a CD does not: the carrier has to be there to pay. Carrier strength is the set of tools for judging that, and none of them is a single number you can read in isolation.
Ratings are the quickest check and the one most buyers stop at. The financials behind the rating, the ownership structure, and the regulatory framework tell you more about how the carrier behaves when conditions turn, which is when it matters.
Usually the wrong answer when
Carrier analysis is the wrong place to spend your energy if the contract itself is wrong for you. A top-tier rating does not fix a ten-year surrender period you cannot sit through, and no rating is a substitute for reading the Surrender charge schedule. Pick the product shape first, then narrow the carriers.
Four agencies publish financial strength ratings on life insurers, each on its own scale. The letters look similar but do not line up one for one, so read each scale on its own terms before comparing carriers across agencies.
What does an AM Best rating tell me about an annuity company?
DefinitionAM Best is a rating agency that specializes in insurance and publishes a Financial Strength Rating on a scale from A++ at the top down to D, expressing its opinion of a carrier’s ability to meet its obligations to policyholders.
AM Best rates more insurers than any other agency, so it is the rating you will see on nearly every annuity brochure. The scale runs in letter groups: A++ and A+ (Superior), A and A- (Excellent), B++ and B+ (Good), B and B- (Fair), then C and D grades, with additional letters for companies under regulatory supervision or in liquidation.
Each rating comes with an outlook (positive, stable or negative) and a written report. The report covers balance sheet strength, operating performance, business profile and enterprise risk management, and it is where the useful detail lives.
- Secure range: B+ and above is what AM Best calls “secure.”
- Vulnerable range: B and below.
- Most annuity carriers: cluster between A++ and B++.
Illustrative
Two carriers both show an “A” on a rate sheet. One is A (Excellent) with a stable outlook; the other is A- (Excellent) with a negative outlook and a report that mentions rising private credit exposure. Same letter group, different pictures.
Watch for
Rate sheets print the letter and drop the modifier and the outlook. “A” on a brochure might be A++ or A-. Ask for the full rating, the outlook and the date, and look at where it has moved over five years rather than where it sits today.
Related: What a rating measures · Rating outlook and watch · Comdex score · Rating trend · Insurance carrier
How is an S&P insurer rating different from AM Best?
DefinitionS&P Global Ratings publishes an Insurer Financial Strength Rating on the same AAA-to-D scale it uses for bonds, expressing its view of a carrier’s capacity to pay policy claims on time.
S&P is a general credit rating agency, so its insurer scale mirrors its bond scale: AAA, AA, A, BBB, then BB, B, CCC, CC and D. Plus and minus modifiers apply from AA through CCC. Anything BBB- or higher is considered investment grade; BB+ and below is speculative.
Because S&P uses one scale across all industries, an insurer rated A by S&P sits in the same credit bucket as a corporation rated A. That is not true of AM Best, whose A is a different concept on an insurance-only scale.
- Coverage: fewer life insurers than AM Best, mostly larger or publicly traded groups.
- Modifiers matter: A+ to A- spans three notches on this scale.
Watch for
Do not translate letters across agencies by eye. An S&P “A” and an AM Best “A” are not the same thing, and an S&P “BBB” is still investment grade even though it sounds weak. Comdex exists to do that translation properly.
Related: AM Best · Moody’s · Fitch · Comdex score · What a rating measures
What does a Moody’s rating like “A2” mean for an insurance company?
DefinitionMoody’s publishes an Insurance Financial Strength Rating on a scale from Aaa down to C, using numeric modifiers 1, 2 and 3 instead of plus and minus signs, to express the likelihood that a carrier meets its policyholder obligations.
Moody’s scale reads Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C. Within Aa through Caa, a 1 means the high end of the category, 2 the middle, and 3 the low end. So A1 is stronger than A2, and A3 sits just above Baa1.
Baa3 and above is investment grade. Like S&P, Moody’s uses one scale for insurers and corporate borrowers, which makes its ratings easy to compare to the carrier’s own bonds and hard to compare directly to AM Best.
Illustrative
A carrier shows Moody’s A2, S&P A, AM Best A. Those three are roughly consistent with one another. A carrier showing Moody’s Baa1, S&P A-, AM Best A is being read more cautiously by Moody’s than by the others, and the reason is worth finding.
Watch for
A split between agencies is information. When one agency is a notch or two below the others, read its report rather than averaging the letters. The lower rating is usually where the newest concern is written down.
Related: S&P Global Ratings · Fitch · AM Best · Comdex score · Rating outlook and watch
Is a Fitch rating worth paying attention to?
DefinitionFitch Ratings publishes an Insurer Financial Strength Rating on a scale from AAA down to D, with plus and minus modifiers, similar in shape to S&P’s scale.
Fitch’s scale runs AAA, AA, A, BBB, BB, B, CCC, CC, C and D, with modifiers from AA through CCC. BBB- and above is investment grade. Fitch rates fewer U.S. life insurers than AM Best, so many annuity carriers simply have no Fitch rating.
When a carrier does carry a Fitch rating, it is another independent opinion and feeds the Comdex composite. When it does not, that is not a negative; many solid mid-size carriers pay for only one or two ratings.
Watch for
A missing rating from any one agency means the carrier did not buy one, not that it failed to earn one. A withdrawn rating, on the other hand, has a reason attached and you should read it.
Related: S&P Global Ratings · Moody’s · AM Best · Comdex score · Rating withdrawn
What is a Comdex score and is 90 good?
DefinitionA Comdex score is a composite percentile ranking from 1 to 100, produced by a third-party data service, that averages a carrier’s ratings from the major agencies and shows where it ranks against all other rated insurers.
Comdex converts each of a carrier’s agency ratings to a percentile and averages them. A score of 90 means the carrier’s ratings, taken together, rank it above about 90% of rated insurers. A carrier needs ratings from more than one agency to receive a score, so smaller carriers with only an AM Best rating have no Comdex at all. Since 2020 the composite also takes in KBRA ratings alongside AM Best, S&P, Moody’s and Fitch.
- It is a rank, not a grade: a 75 is not “C work,” it is better than three quarters of rated carriers.
- It moves with the agencies: Comdex does no analysis of its own.
- Useful for: comparing two carriers rated by different agencies on one scale.
Illustrative
Carrier X is rated by all the major agencies and scores 92. Carrier Y is rated only by AM Best and has no Comdex. That tells you nothing about Y’s strength; it tells you Y did not pay for a second rating.
Watch for
Comdex rewards carriers that buy more ratings and penalizes none of them for buying fewer. Treat a missing score as “not enough data” rather than “weak,” and go read the one rating the carrier does have.
Related: AM Best · S&P Global Ratings · What a rating measures · Rating trend · Capital
What does a financial strength rating actually measure?
DefinitionA financial strength rating is an agency’s opinion of how likely an insurer is to meet its obligations to policyholders over time; it does not rate the product, the interest rate, or your experience as a customer.
Agencies look at four broad areas: how much Capital the carrier holds against its risks, how profitable and stable its operations are, how diversified and well positioned its business is, and how well it manages risk. The rating is forward-looking and includes a view of the parent company and any Reinsurance arrangements.
What it does not measure matters just as much.
- Not the product: a highly rated carrier can sell a contract with a poor Renewal rate history.
- Not service: ratings say nothing about how long a death claim takes to pay.
- Not a guarantee: agencies have downgraded carriers sharply within a year, and ratings are revised after conditions change, not before.
Watch for
The rating is paid for by the carrier being rated. That does not make it worthless, but it does mean the rating is one input, not a verdict. Pair it with the carrier’s own Statutory surplus and Risk-based capital ratio, which come from regulatory filings the carrier does not get to edit.
Related: AM Best · Comdex score · Rating outlook and watch · Statutory surplus · Product track record
What is the difference between a negative outlook and a rating watch?
DefinitionAn outlook is the agency’s view of where a rating is likely to move over the next one to two years; a rating watch (or review) signals that a change is being actively considered, usually within months, because of a specific event.
Every rating carries an outlook: positive, stable or negative. Stable means no change expected.
Negative means the agency sees pressure and may lower the rating if it continues. Positive is the reverse.
A watch is sharper. It is attached when something specific has happened, such as a pending sale of the carrier, a large reinsurance deal, or a sudden loss, and the agency needs to decide whether the rating still fits. Watches resolve in a downgrade, an upgrade or an affirmation, usually within a few months.
Illustrative
A carrier rated A with a negative outlook is still A today. Over the next two years, the agency thinks a move to A- is more likely than not. A carrier rated A on watch negative because its parent is being acquired could be A- next quarter.
Watch for
For a short MYGA, a negative outlook on a strong carrier is often acceptable; the rating is unlikely to fall far during a three-year term. For a ten-year income contract, a negative outlook deserves a conversation before you sign. Match the concern to the length of the promise.
Related: AM Best · Rating trend · Rating withdrawn · What a rating measures
A carrier’s rating says “withdrawn.” Is that bad?
DefinitionA withdrawn rating means the agency has stopped rating the carrier, either because the carrier asked it to, because the company merged or stopped writing business, or because the agency no longer has enough information to maintain an opinion.
Agencies publish a reason when they withdraw. The common ones are benign: the carrier merged into an affiliate, the parent consolidated its ratings, or the carrier decided it no longer needed a rating from that agency. The concerning one is a withdrawal at the carrier’s request shortly after a downgrade or a negative outlook.
The last rating before withdrawal is frozen in the record. A withdrawn rating is not a downgrade, but it removes the ongoing monitoring that makes a rating useful.
Watch for
Ask why. If the carrier stopped paying for the rating right after bad news, that is a carrier choosing less scrutiny.
If another agency still rates it, read that one and check its trend. If no agency rates it at all, you are relying on the regulatory filings alone.
Related: Rating outlook and watch · AM Best · Fitch · Rating trend
Every U.S. life insurer files audited statutory financial statements with its regulators each year, and those filings are public. The terms in this group are how to read the parts that matter for an annuity buyer: how much cushion the carrier holds, where your money is actually invested, and what the current debate about private credit is really about.
What is statutory surplus and why do agents mention it?
DefinitionStatutory surplus is the amount by which an insurer’s assets exceed its liabilities under state accounting rules; it is the carrier’s own capital, the cushion that absorbs losses before any policyholder promise is at risk.
Statutory accounting is deliberately conservative. It values assets cautiously, requires large Reserves against every contract, and counts only certain items as capital.
What is left after all of that is surplus. The bigger the surplus relative to the business, the more room the carrier has to absorb a bad year.
Surplus is usually read as a ratio rather than a dollar figure, because a $2 billion surplus means something different at a carrier with $20 billion of liabilities than at one with $200 billion.
- Capital and surplus to liabilities: a simple cushion measure.
- Risk-based capital ratio: the regulator’s risk-weighted version. See Risk-based capital ratio.
- Trend: growing with the business, or shrinking while sales climb.
Illustrative
A carrier with $50 billion in general account assets and $45 billion in reserves and other liabilities has $5 billion of surplus, about 11% of liabilities. If it doubles sales over three years and surplus stays at $5 billion, the cushion has thinned to roughly 5.5% if liabilities double with it.
Watch for
Fast-growing carriers can show excellent ratings while surplus falls behind the business. Watch surplus against premium growth, and ask whether growth is being supported by Reinsurance that moves liabilities, and the surplus requirement, off the carrier’s own books.
Related: Risk-based capital ratio · Reserves · General account · Capital · Reinsurance
What is an RBC ratio and what number should I look for?
DefinitionThe risk-based capital (RBC) ratio compares an insurer’s actual capital to the minimum amount regulators calculate it needs given the risks it holds; the higher the ratio, the larger the cushion above the regulatory floor.
The NAIC formula assigns a capital charge to each risk a carrier carries: credit risk on its bonds, interest rate risk on its annuities, insurance risk, and business risk. Adding those up produces a required amount. Dividing actual capital by that amount gives the ratio, and the formula sets action levels below which the state must step in.
The reference point is the Authorized Control Level (ACL). The Company Action Level, where a carrier must file a plan to fix itself, is set at 200% of ACL. Carriers and agencies usually quote the ratio against that 200% line, which can make a healthy carrier look like it is barely above water.
The bands below are how the industry typically reads the ratio, not a legal standard.
Watch for
Two traps. First, the ratio is quoted against two different baselines (ACL and Company Action Level) and one is double the other, so confirm which you are looking at.
Second, the formula weights risks by category and does not fully capture concentration or liquidity, so a high RBC on a portfolio heavy in illiquid private assets is not the same as a high RBC on Treasuries. See Private credit exposure.
Related: Statutory surplus · NAIC · Capital · Private credit exposure · State insurance regulation
Where does my fixed annuity money actually go?
DefinitionThe general account is the insurer’s own pool of invested assets, backed by all of its capital, from which it pays fixed annuity, MYGA and fixed index annuity obligations.
When you buy a Fixed annuity, a MYGA or a Fixed index annuity, your premium goes into the general account. The carrier invests it, mostly in bonds, and promises you a stated outcome regardless of how those investments perform. Your contract is a claim on the carrier, not on a specific pile of assets.
That is the point of the arrangement. You take no investment risk; the carrier takes it, and the Statutory surplus is what stands between a bad investment year and your guarantee. It is also why the carrier’s Investment portfolio is your business.
Illustrative
You buy a $100,000 five-year MYGA at 5%. The carrier buys bonds yielding 6% and keeps the 1% spread.
If its bonds return 4% instead, you still get 5% and the shortfall comes from surplus. If they return 8%, you still get 5%.
Watch for
General account contracts put you in line with every other policyholder of that carrier. Diversifying across carriers is how you diversify this risk, which is one reason Splitting premium across carriers makes sense above a certain size. A Separate account product works the other way around.
Related: Separate account · Investment portfolio · Statutory surplus · Fixed annuity · Splitting premium across carriers
What is a separate account and how is it different from the general account?
DefinitionA separate account holds assets apart from the insurer’s general account, legally insulated from the carrier’s other creditors, and is used for variable annuity subaccounts and other products where the policyholder bears the investment risk.
In a Variable annuity, your premium buys units in Subaccounts held in a separate account. The value rises and falls with those investments, and the carrier does not guarantee it. In exchange, separate account assets belong to the contract holders as a group and are walled off if the carrier itself gets into trouble.
Fixed products do not use separate accounts for the account value, because the carrier is guaranteeing the outcome and needs to own the assets to do so. The exception is a RILA, which is registered as a security and, depending on the carrier, may be funded through a separate account while its buffer and floor promises rest on the carrier’s general account.
Watch for
“Insulated from creditors” protects the subaccount assets, not the guarantees layered on top of them. A guaranteed withdrawal benefit on a variable annuity is a general account promise and depends on the carrier’s strength exactly as a fixed annuity does. Read which account backs which promise.
Related: General account · Variable annuity · Subaccounts · RILA · Insurance contract vs investment
What are insurance reserves and are they the same as surplus?
DefinitionReserves are the liabilities an insurer must hold on its books to cover the future payments it has promised on in-force contracts, calculated under conservative state rules; they are not the carrier’s own capital, which is the surplus held above them.
For every annuity on its books, a carrier must set aside a reserve: an amount which, invested at a conservative assumed rate, is expected to be enough to pay the contract’s guarantees. Reserving rules are set by the NAIC and adopted by the states, and they are intentionally stricter than the accounting a public company uses for shareholders.
Reserves plus Statutory surplus equal the assets the carrier holds. Reserves are the promise; surplus is the margin for being wrong about the promise.
- Reserves are mandatory: a carrier cannot choose to hold less.
- Reserves are not a guarantee: if assets backing them lose value, surplus takes the hit first.
Watch for
Agents sometimes point to a carrier’s total assets as evidence of strength. Most of those assets are reserves owed to policyholders, not a cushion.
The cushion is surplus, and the question is how large it is relative to the reserves. See Capital.
Related: Statutory surplus · General account · NAIC · Risk-based capital ratio
What does an insurance company invest my premium in?
DefinitionA life insurer’s investment portfolio is the pool of assets, mostly bonds, mortgages and other fixed-income instruments, that backs its general account obligations; its quality and liquidity determine how safely the carrier can keep its guarantees.
Fixed annuity promises are long and predictable, so carriers match them with assets that are also long and predictable. A typical life insurer portfolio is heavily weighted to investment-grade corporate bonds, government and agency securities, commercial mortgages and asset-backed securities, with smaller slices of equities, real estate and alternatives.
Regulators grade every bond a carrier holds into categories and require more Capital against lower-grade and harder-to-sell assets. The portfolio is disclosed in the statutory filing, so you or your agent can see how much sits in each category.
- Credit quality: what share is below investment grade.
- Liquidity: what share could be sold quickly if many policyholders surrendered at once.
- Related-party assets: whether the carrier invests in funds managed by its own owner.
Watch for
Yield has to come from somewhere. A carrier paying a MYGA rate well above the market is either running on thin margins or holding assets that earn more because they carry more risk.
That is not automatically bad, but it is the first question to ask. See Private credit exposure and How carriers set fixed rates.
Related: General account · Private credit exposure · Capital · How carriers set fixed rates · Private equity-owned carriers
Why do people argue about private credit in annuity companies?
DefinitionPrivate credit exposure is the share of an insurer’s portfolio invested in loans and debt that are not traded on public markets; it tends to pay more than public bonds but is harder to value and harder to sell, which is why its growth at annuity carriers is debated.
Over the past decade, many life insurers, especially those owned by asset managers, have moved a growing portion of their general accounts into privately originated loans, structured credit and other assets without a public market price. The case for it is real: higher yields, which fund more competitive annuity rates, and access to the owner’s lending expertise.
The case against is also real, and it is why regulators, rating agencies and the financial press keep returning to the subject.
- Valuation: without a market price, the carrier’s own model sets the value, and models can be optimistic.
- Liquidity: if many policyholders want their money in the same year, private loans are slow to sell.
- Ratings: some private assets carry private letter ratings from smaller agencies rather than public ratings, which regulators have been studying.
- Related parties: when the carrier’s owner also manages the loans, the owner earns fees on both sides.
Illustrative
Carrier A holds 10% of its portfolio in private credit, mostly senior loans it can model conservatively. Carrier B holds 45%, including structured deals rated by its own affiliate.
Both might show the same AM Best letter today. In a credit downturn their experiences would not be the same.
Watch for
The debate is not settled and this page does not settle it. What you can do is ask what percentage of the portfolio is private, who rates it, and whether the manager is related to the carrier. A short MYGA with a carrier running higher private exposure is a different decision from a lifetime income contract with the same carrier.
Related: Investment portfolio · Private equity-owned carriers · Offshore reinsurance · Risk-based capital ratio · Capital
Who owns the carrier shapes how it prices, how it invests and who it answers to. The same letter rating can sit on a 150-year-old mutual, a public company and a carrier bought by an asset manager five years ago, and those three will behave differently when markets turn.
Is a mutual insurance company safer than a stock company?
DefinitionA mutual insurer is owned by its policyholders and has no outside shareholders, while a stock insurer is owned by shareholders who expect a return; neither structure is automatically safer, but they pull the carrier in different directions.
A mutual has one constituency: the people who hold its contracts. Profits stay in the company as Statutory surplus or are returned as dividends on participating policies. Mutuals tend to carry more capital and take fewer risks, because there is no shareholder pressing for growth.
A stock company answers to shareholders, which can mean sharper pricing and more competitive annuity rates, and also more pressure to grow and to earn a return on capital. Most annuity carriers are stock companies, and most of the carriers offering the highest MYGA rates in any given month are stock companies.
Watch for
Mutual is a structure, not a rating. There are mutuals with modest capital and stock companies with enormous capital. Use ownership to understand incentives, then check the Capital and Rating trend like you would for anyone.
Related: Private equity-owned carriers · Carrier ownership · Statutory surplus · Insurance carrier
Should I avoid annuity companies owned by private equity?
DefinitionA private equity-owned carrier is a life insurer controlled by a private investment firm or asset manager, a structure that has grown rapidly in the annuity market and brings both higher rates and a more complex balance sheet.
Starting around 2010, large alternative asset managers began buying life insurers and blocks of annuity business. The logic is straightforward: annuity premiums are long-term money, and an asset manager that can invest that money at higher yields than a traditional insurer can both pay competitive rates and earn management fees.
The trade-off, stated neutrally, looks like this.
Watch for
“Avoid” is the wrong frame; “understand” is the right one. These carriers hold a large share of the fixed annuity market and have paid as promised. The question is whether the term you are buying matches how well you understand the balance sheet behind it.
MAS places short MYGAs with some of these carriers and is more selective about long income contracts. See Carrier ownership.
Related: Private credit exposure · Offshore reinsurance · Mutual vs stock company · Carrier ownership · Rating outlook and watch
What is reinsurance and does it affect my annuity?
DefinitionReinsurance is insurance for insurers: the carrier that issued your contract transfers some of its risk and reserves to another company in exchange for a premium, while remaining fully responsible to you for every promise in the contract.
Reinsurance is ordinary and old. Carriers use it to smooth results, to free up Capital so they can write more business, and to hand off risks they do not want to hold. In the annuity world, a carrier might reinsure half of a MYGA block, moving half the Reserves and half the capital requirement to the reinsurer.
Your contract does not change. You still hold a promise from the issuing carrier, and the reinsurer owes the carrier, not you. If the reinsurer fails to pay, the issuing carrier still owes you in full.
- Good reinsurance: a well-capitalized, well-regulated counterparty, with collateral posted.
- Questionable reinsurance: an affiliate of the carrier’s owner, lightly regulated, holding the assets offshore.
Watch for
Heavy reinsurance makes a carrier’s own balance sheet look smaller and cleaner than the business it has written. When a fast-growing carrier’s surplus barely moves while its sales triple, reinsurance is usually why.
Ask where the reserves went and who is holding them. See Offshore reinsurance.
Related: Offshore reinsurance · Statutory surplus · Capital · Private equity-owned carriers · Reserves
Why does it matter if my annuity company reinsures in Bermuda?
DefinitionOffshore reinsurance moves an insurer’s reserves and the assets backing them to a reinsurer domiciled outside the United States, most often in Bermuda or the Cayman Islands, where capital and accounting rules differ from the U.S. state system.
Bermuda and the Cayman Islands host large reinsurance industries. Bermuda’s regulator has a framework U.S. and European regulators recognize as broadly equivalent; Cayman’s is lighter. Many annuity carriers, especially asset-manager-owned ones, reinsure large blocks to affiliated companies in these jurisdictions.
Regulators watch this closely for a few reasons.
- Different reserving: offshore rules can require less capital for the same block, which is often the point.
- Visibility: U.S. state regulators have less direct visibility into an offshore affiliate than into a domestic one, and rely on the offshore supervisor and on reciprocal-jurisdiction agreements.
- Asset quality: the offshore entity may hold the more complex assets, out of easy view.
- Concentration: when the reinsurer is an affiliate, the risk has not really left the group.
The NAIC has been tightening disclosure and collateral rules on these arrangements for several years.
Illustrative
A carrier writes $10 billion of MYGAs and reinsures 70% to its Bermuda affiliate. Its U.S. statements show $3 billion of reserves and a comfortable RBC ratio. The other $7 billion, and the assets backing it, sit under Bermuda rules.
Watch for
Offshore reinsurance to a strong, well-regulated reinsurer with collateral in trust is a normal tool. Offshore reinsurance to a thinly capitalized affiliate holding related-party assets is the arrangement regulators worry about. The carrier’s filings disclose which it is; the brochure does not.
Related: Reinsurance · Private equity-owned carriers · Private credit exposure · NAIC · State insurance regulation
Annuities are regulated by the states, not by a federal agency, and that system is what stands behind every carrier promise when a company gets into trouble. What follows explains how it works and what happens to policyholders when a carrier fails, which is rare but not unheard of.
Who regulates annuity companies?
DefinitionLife insurers in the United States are regulated by the insurance department of each state in which they do business, with primary oversight from the state where the company is domiciled; there is no federal insurance regulator.
Each state licenses carriers to sell in its borders, approves the contract forms and rates they use, sets the rules for agent conduct and Suitability, and examines their finances. The Domicile state does the heavy lifting on solvency, and the other states rely on its work while keeping the right to act on their own.
The NAIC writes model laws and the accounting and capital rules the states adopt, so the system is more uniform than fifty separate regulators would suggest. Still, products, approved contract language and consumer protections vary from state to state, which is why an annuity available in one state may not exist in the next.
- Solvency: reserves, RBC, periodic financial exams.
- Market conduct: sales practices, Replacement rules, advertising.
- Consumer help: every state department takes complaints against carriers and agents.
Watch for
State regulation is good at solvency and slow at everything that crosses borders, including offshore reinsurance and large asset-manager groups. The system has handled carrier failures for a century, but the tools were built for traditional insurers and are still catching up to newer structures.
Related: Domicile state · NAIC · Rehabilitation and conservatorship · Suitability · State insurance department complaint
Why does it matter where an insurance company is domiciled?
DefinitionThe domicile state is the state in which an insurer is legally incorporated and whose insurance department serves as its primary regulator for solvency, examinations and any rehabilitation or liquidation.
A carrier may sell in all fifty states, but one state is home. That state’s regulator approves its capital plans, conducts its financial examinations, and takes control if the company fails. Other states defer to the domicile regulator on solvency questions under the NAIC accreditation system.
Domicile is a business choice. Some states have larger, better-resourced insurance departments; some have rules or tax treatment carriers find attractive. A carrier’s domicile does not change the contract you hold, but it does decide who is watching the carrier and how closely.
Illustrative
You live in Ohio and buy a MYGA from a carrier domiciled in Iowa. Ohio approved the contract form and regulates how it was sold to you. Iowa examines the carrier’s books and would run any rehabilitation.
Watch for
Carriers can and do redomicile, sometimes to a state seen as more accommodating. A move is not itself a warning, but a move combined with a change of ownership and a jump in offshore reinsurance is a pattern worth noticing. The rating agencies usually comment on it.
Related: State insurance regulation · NAIC · Rehabilitation and conservatorship · Offshore reinsurance
What is the NAIC and does it have any real power?
DefinitionThe National Association of Insurance Commissioners (NAIC) is the standard-setting body of the state insurance regulators; it writes the model laws, accounting rules and capital formulas the states adopt, but it is not itself a regulator and cannot enforce anything directly.
The NAIC is where the fifty state commissioners coordinate. It produces the statutory accounting manual carriers follow, the RBC formula, the reserving standards, the model Suitability and best interest rules, and the annual statement every carrier files. It also runs the accreditation program that lets states rely on each other’s solvency work.
Because every state adopts most of what the NAIC produces, the practical effect is close to national regulation without a national regulator. The NAIC also publishes the financial data carriers file, which is where surplus, RBC and portfolio figures come from.
- Writes: model laws, accounting, capital rules.
- Does not: license carriers, approve products, or discipline anyone.
- Current focus: private assets, offshore reinsurance, and asset-manager ownership.
Watch for
A model law is only a model until a state adopts it, and adoption can take years and vary in detail. When a page or an agent says “the NAIC requires,” the accurate version is usually “the NAIC model, as adopted in your state, requires.” The state version controls.
Related: State insurance regulation · Risk-based capital ratio · Reserves · Best interest standard · Domicile state
What happens to my annuity if the insurance company fails?
DefinitionRehabilitation and conservatorship are the legal processes by which a state insurance regulator takes control of a troubled insurer, through a court order, to protect policyholders while the company is fixed, sold or wound down.
When a carrier’s capital falls below the regulatory floor and it cannot fix the problem itself, the Domicile state regulator asks a court to place the company under its control. Conservatorship is the shorter, earlier step; rehabilitation is the formal plan to restore the company or transfer its business. If neither works, the last step is liquidation.
In plain terms, this is what policyholders have typically experienced in past cases.
- Contracts continue: the regulator keeps the policies in force and interest generally continues to credit, though sometimes at a reduced rate.
- Withdrawals may be frozen: a moratorium on surrenders and large withdrawals is common, to stop a run on the company, and it can last years.
- Business is often sold: the block of annuities is usually transferred to a healthier carrier, which takes over the promises.
- Haircuts are possible: in a liquidation, policyholders can receive less than full account value, depending on what the assets are worth.
Illustrative
A carrier enters rehabilitation. Your five-year MYGA keeps crediting interest, but you cannot surrender it for two years while the regulator arranges a sale. The buyer assumes the contract at its stated terms, and the freeze lifts.
Watch for
The real cost of a carrier failure is usually time, not total loss: your money is locked while the process runs. That is a strong reason to match carrier strength to the length of the promise, and to split larger sums across carriers rather than concentrating with one, however well rated.
Related: State insurance regulation · Domicile state · Risk-based capital ratio · Splitting premium across carriers · Capital
MAS does not limit itself to carriers with an A rating, and it does not treat a letter as a verdict. A rating is one input.
Before placing money with a carrier we look at four things together, and we weigh them against the length of the promise you are buying: a three-year MYGA and a lifetime income rider are different questions. A carrier rated B++ with strong capital, conservative ownership and a clean renewal history can be a reasonable choice for a short MYGA; a carrier rated A with a negative outlook, thin surplus and a new owner may not be the right home for a twenty-year income promise.
Why does MAS care more about where a rating has been than where it is?
DefinitionRating trend is the direction a carrier’s ratings and outlooks have moved over the past several years, which tells you more about the carrier’s trajectory than today’s letter does on its own.
A rating is a snapshot. Two carriers both rated A today might have arrived there from opposite directions: one upgraded from A- two years ago with a positive outlook, the other downgraded from A+ last year with a negative outlook still attached. We treat the second as a weaker carrier for a long contract even though the letters match.
What we look at:
- Five-year history: every agency’s rating actions and outlook changes.
- Agency agreement: whether the agencies broadly concur, or one is notably lower. See Moody’s.
- Watch status: anything pending, and why. See Rating outlook and watch.
- Reason for moves: a downgrade for a one-time loss reads differently from one for a changed business model.
Watch for
Rating agencies move after the facts change, not before. A clean trend is reassuring but not predictive, which is why we pair it with the carrier’s own Capital figures and its Product track record rather than relying on it alone.
Related: Rating outlook and watch · AM Best · Comdex score · Capital · Rating withdrawn
What does MAS look at in a carrier’s capital?
DefinitionCapital, in the way MAS uses the word, is the cushion a carrier holds above its obligations, measured by statutory surplus, the risk-based capital ratio and how both have moved against the carrier’s growth.
We start with the regulatory filings rather than the brochure. Statutory surplus tells us how large the cushion is; the Risk-based capital ratio tells us how large it is relative to the risks the carrier holds. Then we look at the trend: a carrier whose sales have tripled while surplus stayed flat has thinned its cushion even if the ratio still looks fine.
We also look at what sits behind the capital.
- Portfolio quality: below-investment-grade and private asset shares. See Investment portfolio.
- Reinsurance: how much of the business, and the capital requirement, has been moved off the books. See Reinsurance.
- Parent support: whether the owner has put capital in, or taken it out.
Illustrative
Carrier X: RBC 450%, surplus growing with sales, 12% private credit, no offshore affiliate. Carrier Y: RBC 420%, surplus flat for three years while sales doubled, 40% private credit, most new business reinsured to a Cayman affiliate.
The ratios are close. The pictures are not.
Watch for
A high RBC ratio on a complex balance sheet is not the same as a high RBC ratio on a simple one. The formula does not fully price liquidity or related-party risk, so we read the ratio alongside Private credit exposure and Offshore reinsurance rather than on its own.
Related: Statutory surplus · Risk-based capital ratio · Investment portfolio · Reinsurance · Private credit exposure
How does MAS factor in who owns the carrier?
DefinitionCarrier ownership, as MAS weighs it, is the question of who controls the insurer, how long they have owned it, what they have done with its balance sheet, and how likely it is to change hands again during your contract.
Ownership tells us about incentives. A mutual has no reason to stretch for yield; a public stock company answers to quarterly earnings; a carrier owned by an asset manager has a parent that earns fees on the assets and a strong reason to grow them.
None of those is disqualifying. Each one changes what we look for next.
- Tenure: how long the current owner has held the carrier, and what happened to surplus and the portfolio after the purchase.
- Related parties: whether the owner manages the carrier’s assets or reinsures its business through affiliates.
- Stability: whether a sale is rumored, pending or recent, which puts ratings on watch.
- Fit to term: a short MYGA can tolerate more ownership complexity than a lifetime income rider can.
Watch for
We do not screen out a category of owner, and we do not pretend ownership does not matter. The honest position is that asset-manager-owned carriers have delivered competitive rates and paid as promised, and that their balance sheets are harder to read. We place money with them for terms where that trade is sensible and say so when it is not.
Related: Mutual vs stock company · Private equity-owned carriers · Offshore reinsurance · Reinsurance · Rating outlook and watch
What is a product track record and why does MAS check it?
DefinitionA product track record is how a carrier has actually treated its in-force contracts over time: renewal rates on fixed annuities, renewal caps and participation rates on index annuities, rider fee changes and service, which ratings do not measure at all.
A carrier can be financially strong and still treat existing customers poorly, because nothing in a rating looks at how renewals are set. We look at the carrier’s history on contracts it has already sold, because that is the behavior you will live with after the first year.
- Fixed renewals: where in-force renewal rates have landed relative to new-money rates. See Rate history.
- Index renewals: whether caps and participation rates on older FIAs were cut hard after year one.
- Rider fees: whether the carrier has used its right to raise them. See Rider fee changes.
- Service: how fast it issues contracts, pays withdrawals and processes death claims.
Carriers that have been in the annuity business a long time have a record to read. Newer entrants and carriers recently acquired do not, which is a reason for caution on long contracts rather than a reason to avoid them on short ones.
Illustrative
Two carriers both offer a 7% first-year FIA cap. One has renewed its in-force caps at 6% to 7% for a decade.
The other has a five-year history of renewing at 3% to 4%. The illustrations look identical; the contracts will not.
Watch for
A MYGA with the rate locked for the full term largely sidesteps renewal risk, which is one reason it is the product we place most. For anything with a renewable rate, cap or fee, the track record is at least as important as the rating, and the carrier will not volunteer it. Ask for it.
Related: Renewal rate · Rate history · Renewal caps and participation rates · Rider fee changes · Rating trend
My Annuity Store is a licensed insurance agency. This reference is general education, not a recommendation for any product or carrier, and it is not tax or legal advice. Ratings are opinions of the agencies that issue them, change over time, and are not guarantees. MAS does not give tax or legal advice. Call 855-277-8088 or email info@myannuitystore.com with questions.
