Life Insurance

Why Insurance Ratings Matter

Understanding the role of insurance ratings agencies can help you feel confident when you decide to purchase a life insurance policy — especially now. In fact, I’m proud to report that on March 24, 2021 the ratings agency A.M. Best reaffirmed our A+ (Superior) rating, noting that it reflects our “balance sheet strength, which A.M. Best assesses as strongest, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management.”

Penn Mutual continues to be recognized for our financial strength by top industry rating organizations — A.M. Best, Moody’s, Standard & Poor’s and Kroll — even as the industry adjusts its outlook on the life insurance sector as a whole during the COVID-19 pandemic and the associated economic environment.

This reaffirmation is particularly noteworthy because over the past year my fellow Penn Mutual associates and I have been consistently working throughout the COVID-19 global pandemic. Looking back, we’re extremely proud of how Penn Mutual has maintained business continuity thanks to careful planning and technology investments that make it possible for us to continue to operate as usual. We have a long history of protecting what matters most through recessions, wars and pandemics and have always taken the long-term view.

If you want to build a foundation of protection into your financial strategy, you likely want to do business with a company offering a long history of delivering on its promises. Annual ratings are a reflection of our mutuality and financial strength.

Here’s why ratings should be a significant factor for your buying decision.

An independent point of view

Consumers look to life insurance and annuities as an important part of their overall financial strategy. These products are really promises — promises to provide protection, give greater financial flexibility, and help allow for a safe retirement. Rating agencies provide an independent view of the future ability of an insurance company to make good on those promises. Ratings agencies take such factors as capital strength, business strategy, and distribution relationships into account in their determination of our future claims-paying ability. They also take structure into account, so rating agencies consider our long-term focus as a mutual insurer in our ratings.

Financial professionals also look at ratings when they choose to do business with a new life insurance company. They trust us with their clients, a responsibility they don’t take lightly, so they also look to ratings agencies as a way to verify the quality of our products and company stature.

How ratings agencies work

In our industry, the major ratings agencies each take a slightly different perspective when evaluating the strength of a company. However, they do tend to boil down to a few similar factors:

  • Capital strength. Each of the ratings agencies views capital a bit differently ranging from a statutory view (which is how a regulator views Penn Mutual’s balance sheet) to proprietary models. Over the last few years, we have built internal versions of each of the ratings agencies’ models so we can better understand their perspective and anticipate any ratings movement.
  • Business profile. This looks at the overall business plan, the strength of the strategy, portfolio of products and the structure of distribution. It is in this section that ratings agencies value that we have a variety of ways for financial professionals to work with us, and view our approach as a distinct advantage.
  • Governance and risk management practices. This category includes how the company functions internally to raise concerns, manage risk and set risk limits.

As the rating agencies meet with us, and we build relationships with them, there are several opportunities to tell them our story. First, they review our financial reports (GAAP and Statutory statements) and ask us a series of questions through a survey process once a year.

We also make ourselves available for quarterly calls with each of the agencies where our President and COO, Dave O’Malley, and I as CFO give them an update on our results, any changes we might make, and what we see in the marketplace.

This is often a good place for us to get external information on industry trends such as how our lapse rates compare to the industry broadly, how others are managing a changing regulatory landscape or how is the industry responding to financial market movements. Finally, we invite each of the rating agencies to our home office in Horsham, Pa., each year to tell them the Penn Mutual story: who we are, what we do, and how we do it — some of which is derived from our annual business plan.

One important note is that Penn Mutual, and other life insurance companies, opt to partner with these ratings agencies to be reviewed. From our perspective, we see being analyzed and reviewed as an independent proof point for financial professionals, prospective clients, and current policyholders to reinforce our structure, and measure our ability to make good on our promises.

An insurer’s financial strength rating represents an opinion by the issuing agency regarding the ability of an insurance company to meet its financial obligations to its policyholders and contract holders. A rating is an opinion of the rating agency only, and not a statement of fact or recommendation to purchase, sell or hold any security, policy or contract. These ratings do not imply approval of our products and do not reflect any indication of their performance. For more information about a particular rating or rating agency, please visit the website of the relevant agency.


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