In this article, we will be taking a look at 10 annuity companies to avoid if you are looking for companies with minimal risk. To see more of these companies, you can go directly to see the 5 Annuity Companies To Avoid.
In one of our previous articles, we explained how annuities are considered to be a more specialized concept within the insurance industry. To briefly recap, annuities are a form of insurance that take the shape of contracts between insurance companies and their clients, with the requirement being placed on the insurer to make payments to their customers. These payments may be made either immediately or at some point in the future, based on the type of annuity you get. As far as the customer is concerned, they can purchase an annuity through either a single, one-time payment or by making a series of payments that are spread out over several years. As we mentioned before, the four main types of annuities include immediate annuities, deferred annuities, fixed annuities, and variable annuities. This form of insurance, and the companies that offer them to their clients, will be the subject of our article today, with a specific focus on which companies should be avoided within this space, considering their financial health.
Global Insurance In A Bind
The insurance industry at large is considered to be one that has been suffering from widespread instability over the past few years. Due to this, insurance companies such as Metlife, Inc. (NYSE:MET), UnitedHealth Group Inc. (NYSE:UNH), and Markel Corporation (NYSE:MKL) are having to face grown challenges induced by digital changes, rising concerns surrounding environmental, social, and governance (ESG) factors, and more. According to a McKinsey report on the insurance industry, published in November 2022, the industry has been suffering in terms of its performance and relevance. One major indicator of this is that nominal GDP growth seems to have outpaced premium growth. The report mentioned that in the US and Europe, while nominal GDP grew at a compound annual growth rate of 4% over the 20 years preceding 2022, premium growth grew by a compound annual growth rate of merely 2% over the same period. Similar trends have been noted in Asia as well.
The report also mentions that the insurance industry struggled to generate returns in excess of the cost of capital over the same period of 20 years. Additionally, the situation shows that insurance carriers have been unable to structurally address their cost base. This has resulted in the insurance industry lagging behind others, such as the asset management industry, which has managed to address its costs and mitigate their impact on its revenues. According to McKinsey, this has resulted in the insurance industry’s costs as a share of revenues increasing by 23% since 2003. Several other observations in the report seem to paint a bleak picture regarding the performance of the insurance industry thus far.
Optimism From Other Avenues
Despite the above, other financial organizations such as A.M. Best have been highlighting the fact that the insurance industry, and within it, the specialized segment of annuities, may, in fact, be set for a stable journey in 2023. The organization’s market segment report published in November 2022 showed that it was maintaining its Stable outlook for the US life/annuity segment, the US health insurance industry, the global reinsurance segment, and the US commercial lines segment. A.M. Best also maintained a Positive outlook for the delegated underwriting authority enterprises market.
This outlook on different segments within the insurance industry highlights that all may not be lost for the industry. It is based on many factors. These include record annuity sales growth of 22% in the US in the second quarter of 2022, improvements in global reinsurance rates compared to their state in 2018, sustained strong underwriting performance during the COVID-19 pandemic and economic volatility, and rising cyber-focused investments during 2022 driving the ability of delegated underwriting authority enterprises to capitalize on their expertise and advanced tech to strengthen their distribution channels. On this last factor, it is to be noted that the report quoted a figure of nearly $1 billion being poured into cyber-focused investments between January and November 2022.
The above factors combined paint a picture that implies that while the insurance industry is certainly not breezing through its difficulties, there remains hope for this sector just yet. However, safety and caution must be exercised when venturing into this space. In light of this, we have compiled a list of annuity companies, in particular, to avoid if you are a customer looking for a company with immense financial health.
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Our Methodology
To select the annuity companies for our list, we used the Life Insurer Financial Report published in 2022 to pick out companies with A.M. Best ratings of B++ and below and Comdex scores of under 50. A.M. Best ratings include A++ (Superior), A+ (Superior), A (Excellent), A- (Excellent), B++ (Very Good), B+ (Good), B, B-, C++, C+, C, C-, D (all Vulnerable), E (Under State Supervision), F (In Liquidation), and S (Rating Suspended). These ratings highlight the financial strength of the company, with ratings of B++ and below indicating that the company’s financial strength falls short, especially in comparison to its competitors.
The Comdex Score is a ranking from 1-100 and represents a composite score of all ratings assigned by rating agencies. A Comdex score of 49 would mean that the company in question is ranked higher than 48% of all insurance companies. The higher a company’s Comdex score, the better it is considered to be. We have thus ranked these companies based on their A.M. Best ratings and Comdex scores, from the highest to the lowest in both metrics.
Annuity Companies To Avoid
10. CL Life & Annuity Insurance Company
AM Best Rating: B++
Comdex Score: 49
CL Life & Annuity Insurance Company is a company that was founded in 1978. It falls under the wing of Crestline Assurance Holdings LLC. The company is based in Fort Worth, Texas.
CL Life & Annuity Insurance Company offers flexible retirement solutions and high-value retirement savings tools. It provides clients with single premium tax-deferred annuities with interest rates over a time frame of one to five years, among more. While this company’s A.M. Best rating of B++ and Comdex score of 49 show that it’s doing alright financially, for those looking to have an ironclad annuity and insurance provider, this company may not be the right pick.
Metlife, Inc. (NYSE:MET), UnitedHealth Group Inc. (NYSE:UNH), and Markel Corporation (NYSE:MKL) would be preferred alternatives for those looking for excellent insurance companies.
9. Talcott Resolution Life Insurance Company
AM Best Rating: B++
Comdex Score: 47
Talcott Resolution Life Insurance Company is an insurance company founded in 1902 and based in Windsor, Connecticut. Its parent organization is TR RE, Ltd.
The company claims to oversee and administer about one million contracts and $90 billion in pro-forma assets under management. Talcott Resolution Life Insurance Company has a B++ rating at A.M. Best, a BBB (Good) rating at S&P, and a Baa3 (Adequate) rating at Moody’s. Like the company above, these ratings and the Comdex score of 47 imply that the company’s financial health is merely adequate at the moment, so it is not a very strong contender within the annuity space compared to its competitors.
8. Talcott Resolution L&A Insurance Company
AM Best Rating: B++
Comdex Score: 47
Talcott Resolution L&A Insurance Company is part of the Talcott Financial Group, like Talcott Resolution Life Insurance Company above. It is based in Windsor, Connecticut, and it was incorporated in 1996.
The company provides risk management and annuity business technology solutions within the life insurance industry. Talcott Resolution Life Insurance Company also offers consulting services and operates globally. This company also has a B++ rating at A.M. Best, a BBB (Good) rating at S&P, and a Baa3 (Adequate) rating at Moody’s alongside a Comdex score of 47, implying its financial health is in the same condition as the company before it.
7. EquiTrust Life Insurance Company
AM Best Rating: B++
Comdex Score: 39
EquiTrust Life Insurance Company is based in West Des Moines, Iowa. The company was founded in 1966.
EquiTrust Life Insurance Company provides competitive, client-friendly annuity and life insurance products through its network of independent sales representatives. It has over $25.2 billion in assets and $23.5 billion in liabilities, making its assets-to-liability ratio come up to 107.42%. EquiTrust Life Insurance Company has a B++ rating at A.M. Best and a BBB+ (Good) rating at S&P, alongside a Comdex score of 39.
For those looking for insurance companies with better financial health, Metlife, Inc. (NYSE:MET), UnitedHealth Group Inc. (NYSE:UNH), and Markel Corporation (NYSE:MKL) can be suitable alternatives.
6. Investors Heritage Life Insurance Company
AM Best Rating: B++
Comdex Score: 39
Investors Heritage Life Insurance Company was founded in 1960. The company is based in Frankfort, Kentucky. It is affiliated with the Aquarian Holdings Group, which acquired it in 2018.
In 2018, the acquisition of Investors Heritage Life Insurance Company took the company private. The company has over $1.9 billion in assets and $1.7 billion in liabilities, bringing its assets-to-liability ratio up to 111.41%. Investors Heritage Life Insurance Company has a Comdex score of 39 and an A.M. Best rating of B++, while Fitch has a BBB- rating on it.
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Disclosure: None. 10 Annuity Companies To Avoid is originally published on Insider Monkey.
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