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What is Standard & Poor’s (S&P)?

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Standard & Poor’s (S&P) is a credit ranking agency that grades life insurance companies’ financial strength. Policygenius uses S&P ratings to inform our best life insurance company recommendations.

Rebecca Shoenthal author photo

Rebecca Shoenthal

Published November 12, 2020

KEY TAKEAWAYS

  • S&P rates life insurance companies based on their issuer credit rating (ICR), financial strength rating (FSR), and CreditWatch outlook

  • Policygenius uses S&P’s ratings to inform our editorially independent reviews of life insurance companies

  • “AAA” is the best possible rating and “D” is the worst possible rating

At Policygenius, we compile our best life insurance company recommendations each year using several factors – including third-party rating groups. Standard and Poor’s (S&P) is a financial services company that rates insurance companies based on financial strength, or how likely they are to repay debts and obligations like life insurance claims. S&P is recognized as a “Big Three” credit rating agency, along with Moody’s and Fitch Group.

Why do Standard and Poor’s ratings matter for life insurance shoppers?

After you’ve determined the type of life insurance policy you need, you’ll want to compare each company’s premium rates. Sometimes, several insurers have similar prices and policies, so it can be difficult to decipher which life insurance company is better.

S&P ratings can help you make a more informed decision about a potential insurer’s financial health. This is particularly important when shopping for life insurance because death benefits pay out after you’re gone, so you want to be confident that your beneficiaries are in good hands.

Standard & Poor’s is a globally renowned source for opinions on the financial strength of banks, money markets, bond funds, and insurance companies. A life insurance policy is useless if it doesn’t do what it’s supposed to do: pay out a lump sum of cash to support your loved ones when you’re not able to. S&P weighs the outstanding debts and other financial risks of national life insurance companies and rates them according to a detailed scale.

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How does Standard and Poor’s rating scale work?

S&P focuses on three main components when rating insurance companies: creditworthiness, financial strength, and credit outlook. As such, each insurance company is given two letter-graded ratings – an “Issuer Credit Rating” and a “Financial Strength Rating” – and a “CreditWatch” rating that ranges from positive to developing. These ratings, like Moody’s, account for both short- and long-term financial risk.

S&P Issuer Credit Ratings

S&P Issuer Credit Ratings, which assess a company’s overall creditworthiness, account for the following factors:

  • Capacity and willingness for the insurer to meet its financial commitments when due
  • The nature of the company’s financial obligations
  • How stable the company would be in the event of bankruptcy, reorganization, or a similar situation

Long-Term Issue Credit Ratings

CategoryDefinition
AAAAn obligor rated 'AAA' has an extremely strong capacity to meet its financial commitments. 'AAA' is the highest issuer credit rating assigned by S&P Global Ratings.
AAAn obligor rated 'AA' has a very strong capacity to meet its financial commitments. It differs from the highest-rated obligors only to a small degree.
AAn obligor rated 'A' has a strong capacity to meet its financial commitments but is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligors in higher-rated categories.
BBBAn obligor rated 'BBB' has an adequate capacity to meet its financial commitments. However, adverse economic conditions or changing circumstances are more likely to weaken the obligor's capacity to meet its financial commitments.
BB, B, CCC, and CCObligors rated 'BB', 'B', 'CCC', and 'CC' are regarded as having significant speculative characteristics. 'BB' indicates the least degree of speculation and 'CC' the highest. While such obligors will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposure to adverse conditions.
BBAn obligor rated 'BB' is less vulnerable in the near term than other lower-rated obligors. However, it faces major ongoing uncertainties and exposure to adverse business, financial, or economic conditions that could lead to the obligor's inadequate capacity to meet its financial commitments.
BAn obligor rated 'B' is more vulnerable than the obligors rated 'BB', but the obligor currently has the capacity to meet its financial commitments. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitments.
CCCAn obligor rated 'CCC' is currently vulnerable and is dependent upon favorable business, financial, and economic conditions to meet its financial commitments.
CCAn obligor rated 'CC' is currently highly vulnerable. The 'CC' rating is used when a default has not yet occurred but S&P Global Ratings expects default to be a virtual certainty, regardless of the anticipated time to default.
SD and DAn obligor is rated 'SD' (selective default) or 'D' if S&P Global Ratings considers there to be a default on one or more of its financial obligations, whether long- or short-term, including rated and unrated obligations but excluding hybrid instruments classified as regulatory capital or in nonpayment according to terms. An 'SD' rating is assigned when S&P Global Ratings believes that the obligor has selectively defaulted on a specific issue or class of obligations but it will continue to meet its payment obligations on other issues or classes of obligations in a timely manner. A 'D' rating is assigned when S&P Global Ratings believes that the default will be a general default and that the obligor will fail to pay all or substantially all of its obligations as they come due. A rating on an obligor is lowered to 'D' or 'SD' if it is conducting a distressed debt restructuring.

*Ratings from 'AA' to 'CCC' may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the rating categories.

Information courtesy of Standard & Poors

Short-Term Issuer Credit Ratings

CategoryDefinition
A-1An obligor rated 'A-1' has a strong capacity to meet its financial commitments. It is rated in the highest category by S&P Global Ratings. Within this category, certain obligors are designated with a plus sign (+). This indicates that the obligor's capacity to meet its financial commitments is extremely strong.
A-2An obligor rated 'A-2' has a satisfactory capacity to meet its financial commitments. However, it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligors in the highest rating category.
A-3An obligor rated 'A-3' has an adequate capacity to meet its financial obligations. However, adverse economic conditions or changing circumstances are more likely to weaken the obligor's capacity to meet its financial commitments.
BAn obligor rated 'B' is regarded as vulnerable and has significant speculative characteristics. The obligor currently has the capacity to meet its financial commitments; however, it faces major ongoing uncertainties that could lead to the obligor's inadequate capacity to meet its financial commitments.
CAn obligor rated 'C' is currently vulnerable to nonpayment that would result in an 'SD' or 'D' issuer rating and is dependent upon favorable business, financial, and economic conditions to meet its financial commitments.
SD and DAn obligor is rated 'SD' (selective default) or 'D' if S&P Global Ratings considers there to be a default on one or more of its financial obligations, whether long- or short-term, including rated and unrated obligations but excluding hybrid instruments classified as regulatory capital or in nonpayment according to terms. A 'D' rating is assigned when S&P Global Ratings believes that the default will be a general default and that the obligor will fail to pay all or substantially all of its obligations as they come due. An 'SD' rating is assigned when S&P Global Ratings believes that the obligor has selectively defaulted on a specific issue or class of obligations but it will continue to meet its payment obligations on other issues or classes of obligations in a timely manner. A rating on an obligor is lowered to 'D' or 'SD' if it is conducting a distressed debt restructuring.

Information courtesy of Standard & Poors

S&P Insurer Financial Strength Ratings

An S&P Global Ratings insurer financial strength rating evaluates the financial security of an insurance company. This rating primarily judges an insurer’s ability to pay out its insurance policies and contracts in accordance with their terms. However, the financial strength ratings do not account for a company’s cancellation penalties, timeliness of payments, nor how likely it is to deny claims.

S&P Insurer Financial Strength Ratings

CategoryDefinition
AAAAn insurer rated 'AAA' has extremely strong financial security characteristics. 'AAA' is the highest insurer financial strength rating assigned by S&P Global Ratings.
AAAn insurer rated 'AA' has very strong financial security characteristics, differing only slightly from those rated higher.
AAn insurer rated 'A' has strong financial security characteristics but is somewhat more likely to be affected by adverse business conditions than are insurers with higher ratings.
BBBAn insurer rated 'BBB' has good financial security characteristics but is more likely to be affected by adverse business conditions than are higher-rated insurers.
BB, B, CCC, and CCAn insurer rated 'BB' or lower is regarded as having vulnerable characteristics that may outweigh its strengths. 'BB' indicates the least degree of vulnerability within the range and 'CC' the highest.
BBAn insurer rated 'BB' has marginal financial security characteristics. Positive attributes exist, but adverse business conditions could lead to insufficient ability to meet financial commitments.
BAn insurer rated 'B' has weak financial security characteristics. Adverse business conditions will likely impair its ability to meet financial commitments.
CCCAn insurer rated 'CCC' has very weak financial security characteristics and is dependent on favorable business conditions to meet financial commitments.
CCAn insurer rated 'CC' has extremely weak financial security characteristics and is likely not to meet some of its financial commitments.
SD and DAn insurer rated 'SD' (selective default) or 'D' is in default on one or more of its insurance policy obligations. The 'D' rating also will be used upon the filing of a bankruptcy petition or the taking of similar action if payments on a policy obligation are at risk. A 'D' rating is assigned when S&P Global Ratings believes that the default will be a general default and that the obligor will fail to pay substantially all of its obligations in full in accordance with the policy terms. An 'SD' rating is assigned when S&P Global Ratings believes that the insurer has selectively defaulted on a specific class of policies but it will continue to meet its payment obligations on other classes of obligations. An 'SD' includes the completion of a distressed debt restructuring. Claim denials due to lack of coverage or other legally permitted defenses are not considered defaults.

*Ratings from 'AA' to 'CCC' may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the rating categories.

Information courtesy of Standard & Poors

S&P CreditWatch Outlook ratings

S&P uses CreditWatch to gauge the potential direction of a short-term or long-term rating. This category identifies financial and credit-related trends of the insurance company. An insurer might be placed under CreditWatch in the following situations:

  • After a recent event, such as a merger or acquisition
  • When there’s been a significant change in the company’s performance
  • The insurer has made an impactful change in their operations

CreditWatch Ratings Outlooks

RatingMeaning
PositiveA rating may be raised
NegativeA rating may be lowered
StableA rating is not likely to change
DevelopingA rating may be raised, lowered, or affirmed

Information courtesy of Standard & Poors

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How Policygenius uses S&P

Policygenius takes a comprehensive approach to determine the best life insurance companies available. We don't get paid for reviews and evaluate an extensive rubric of criteria, including Standard and Poor’s ratings, to come up with robust (and unbiased) reviews to match you with the right life insurance company for you.

S&P ratings factor into our Confidence category: consumer confidence based on scores from major financial rating institutions. We normalize ratings from Standard & Poor’s, Moody’s and A.M. Best, and give companies a score out of 10.

To learn more, you can compare our life insurance company reviews or read our complete ratings methodology.

Standard and Poor's ratings FAQs

How do I choose the best life insurance company?

The best life insurance company for most shoppers is one that offers the cheapest premiums for the amount of coverage they need. Beyond price and benefit amount, looking at a company’s third-party financial ratings and customer reviews should factor into your decision.

What life insurance company ratings should I look at?

Third-party ratings from firms like A.M. Best, Standard & Poor’s, and Moody's can give you peace of mind that a company is financially stable and will be around for a long time. You can also look at customer reviews from the Better Business Bureau and J.D. Power. These should be taken with a grain of salt, but you can be on the lookout for recurring complaints.

What is a good S&P rating?

Standard and Poor’s rates companies on a scale from AAA to D. The higher the rating (closer to AAA), the stronger the company’s financial stability. A reputable insurance company will also be accompanied by a “Positive” or “Stable” CreditWatch outlook rating.

Insurance Expert

Rebecca Shoenthal

Insurance Expert

Rebecca Shoenthal is an insurance editor at Policygenius in New York City. Previously, she worked as a nonfiction book editor. She has a B.A. in Media and Journalism from the University of North Carolina at Chapel Hill.

Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.

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