By David B. Bruckman and David Pilaitis
Special to the Legal
Business owners looking for life insurance coverage face myriad factors to consider. We often review the financial strength of life insurance companies where our clients own policies or are contemplating applying for insurance. Ratings also may be relevant if a client has an existing contract that is sold to or otherwise acquired by a new carrier.
Most folks know the names of some of the major ratings agencies, such as Moody’s or Fitch. We, however, generally focus on a carrier’s Comdex score.
The Comdex is a composite index based on the ratings received by an insurance company from the individual ratings agencies. It is expressed as the average percentile ranking for all of the ratings received by an insurance carrier. The Comdex score is not, in and of itself, a rating, but is rather an independent scale to compare companies, with a score of 100 being the best.
We focus on the Comdex because individual ratings can be complicated. Rating agencies do not use a universal scale, because each tries to differentiate itself. That makes it hard for a consumer to compare apples to apples. For example, an A-plus rating from one service will mean something quite different than an A-plus from another service.
See, for example, a report for a representative carrier, which sets forth the following ratings and Comdex scores:
- A.M. Best Company (Best's Rating, 15 ratings) A-plus
- Standard & Poor's (Financial Strength, 20 ratings) AA-minus
- Moody's (Financial Strength, 21 ratings) A1
- Fitch Ratings (Financial Strength, 21 ratings) A-plus
- Comdex Ranking (Percentile in Rated Companies) 91
We generally recommend carriers with a Comdex of 90 or higher. That said, there may be valid reasons to use a carrier with a lower Comdex rating. Such reasons include getting an underwriting concession, or the need or desire for a specific product not offered by a carrier with stronger ratings.
If you own a policy that is sold to or acquired by a new carrier, you should research the new carrier’s strength. Usually, it will not make sense to seek out new insurance, especially if it is permanent coverage, even if the Comdex of the new carrier is lower than normally desired.
David B. Bruckman is managing director of Citrin Cooperman Wealth Management, a registered investment advisory group that provides personal financial planning, investment management and insurance design and brokerage. He can be reached at [email protected]
David Pilaitis is a director and chief compliance officer with the firm. A certified financial planner, he provides comprehensive financial planning and investment advisory services to the firm’s clients, including high-net-worth individuals, corporate executives, trusts and small pension plans. He can be reached at [email protected]