Structured Settlements 4Real™ Blog: Structured Settlements | Settlement Planning News and Commentary

Weiss Downgrades US Debt to C-

In downgrading United States government debt to C-,  Weiss Ratings says it is NOT predicting a default, but the downgrade adds urgency to Weiss ratings' earlier recommendations to avoid all medium- or long-term government securities. Weiss says you can still hold short-term T-bills. But be sure to hedge against the growing dollar risks .

Here is the press release Weiss issued today about the downgrade

Weiss Ratings Downgrades United States Debt to C-Minus

JUPITER, Florida (July 15, 2011) — Weiss Ratings, an independent rating agency of U.S. financial institutions and sovereign debts, has downgraded the debt of the United States government from C to C-minus.

The C-minus rating for the U.S. reflects a continued deterioration in the weaknesses cited in the Weiss Ratings release of April 28, 2011, including heavy debt burdens, shaky international stability, and poor economic health.

Weiss Ratings senior financial analyst Gavin Magor commented in the Weiss Ratings press release: “Our downgrade today is not contingent on the outcome of the debt ceiling debate in Washington. It is driven exclusively by the numbers, which indicate that, in addition to a decline in the long-standing weaknesses we noted three months ago, the U.S. has already lost the golden halo that helped guarantee liquidity and acceptance of its government securities in global markets.”

On the Weiss Ratings scale, which ranges from A (excellent) to E (very weak), a C-minus rating is the approximate equivalent of a triple-B-minus on the scales used by other credit rating agencies, or approximately one notch above speculative grade (junk).

Weiss May Downgrade US Debt to C-

Weiss Ratings is “very close” to downgrading U.S. government debt another notch, to “C-minus” on its own scale, just a step above junk, Martin Weiss, president of the ratings group, told CNBC. 

Weiss Ratings: For Whom "The Belth" Tolled

My tabulation of Weiss ratings of various structured settlement annuity issuers was not surprisingly not well received by all of the insurers because Weiss does not give the highest ratings to some companies that have high ratings from S&P or A.M Best or others.  With some obligations stretching decades into the future,  I personally believe that there is more gain than loss in an insurance or annuity purchase decision from having as much information a possible at your disposal.

Harsh criticism has been rained on the better known rating agencies due to the most recent financial crisis. They also came under significant criticism  two decades ago during and especially after the junk bond crisis of the mid to late 1980s.

Yet insurance industry scholar Joeph Belth, author of the Insurance Forum since 1974, and professor emeritus at Indiana University shared some critical thought on Weiss Ratings in his February-March 2005 Special Report  "Why We Omitted The Weiss Ratings From Our September 2004 Special Ratings Issue"  (Belth had tracked Weiss ratings in that report for about 11 years up to that point).

Recognition Problem

Belth observed that few insurers had Weiss ratings displayed in advertisements, even by insurance companies with high Weiss ratings.

Belth observed that Weiss ratings were not disclosed in Securities and Exchange Commission
filings by public companies with insurance subsidiaries. Contrary to the common notion that the companies omitted them because Weiss gave them low ratings, Belth surmises that Weiss ratings were not considered material information for purposes of such financial disclosures.

Perception Problem

Belth opined that the lettering system used by Weiss adds to the confusion. For example an A+ rating in Weiss is the highest rating while it is a rating down a few notches from others. How about Moody's? If a company has a Baa rating are we supposed to boo or bleat?

            

And isn't a "Caa" something that you pahk in "Hahvad yahd"?

independence Claim By Weiss

One of our readers, an officer at a life insurer, recently stated to me that Weiss never interviewed any of his company's management before coming up with a rating. Indeed that is the point with Weiss. Weiss claims to rely solely on public information, does not meet with company management, and consequently does not risk being influenced by management.

Belth opines that there are three problems with that claim:

1. Weiss obtains nonpublic information from and meets with the management of some rated companies.
2. Although most ratings assigned by the other rating firms reflect nonpublic information and meetings with management, the other rating firms assign some ratings based solely on public information.
3. The expert consensus is that the quality of rating opinions is enhanced by obtaining nonpublic information and meeting with management.

Belth also opined in the article that he thinks "the fact that the other rating firms receive money from
rated companies does not significantly affect the quality of the rating opinions, especially  in view of the
strong competition among the rating firms".

"Hemingwayyyyy.".. if you want a copy, here's the "411":

The Insurance Forum, an independent periodical, is published by Insurance Forum, Inc., P. O. Box 245,
Ellettsville, Indiana 47429. Telephone (812) 876-6502. www.theinsuranceforum.com. ISSN 0095-2923. You can obtain a free 4 page reprint of the original article  by contacting them.

 

Structured Settlement Annuity: What Does an A+ Rating Mean?

You've just been told that the insurance company you are considering for your structured settlement or retirement annuity is rated A+. What exactly does that mean?

Generally when one hears "it's an A+ rated company" the speaker is referring to the financial strength rating of A.M Best & Company.

According to its April 18, 2011 Ratings Guide "a Best's Financial Strength Rating is an independent opinion of an insurer's financial strength and ability to meet its ongoing insurance policy and contract obligations. It is based on a comprehensive quantitative and qualitative evaluation of a company's balance sheet strength, operating performance and business profile".

Other companies such as Standard & Poors, Fitch , Moodys and Weiss, also assess and publish ratings of an insurance company for financial strength and/or claims paying ability. It should be noted that with the exception of Weiss, an insurance company must pay a fee to the rating agency in order to be rated. Further it should be noted that, with the exception of Weiss, for the other rating agencies, with the exception of Weiss, an A+ rating is not one of its superior ratings.

Whie traditionally the A.M. Best ratings are stated first, be aware that some companies are creative in "window dress" their ratings so that for exmaple an A+for Fitch appears on the top, while a lower A (Excellent) rating from Best appears last

Link to A.M. Best Ratings Guide

Fitch Upgrades AIG Life Subsidiaries Citing "Improved Financial Profile"

Good news for AIG structured settlement annuitants.

Fitch Ratings has upgraded the Insurer Financial Strength (IFS) ratings of American
International Group, Inc.'s domestic life insurance subsidiaries known as SunAmerica Financial Group to 'A' from 'A-'. The Outlook for all ratings is Stable.

Fitch states "The rating action of April 25, 2011 follows a review of SunAmerica Financial Group's recent financial results. The upgrade reflects the company's improved financial profile as evidenced by higher operating earnings, reduced investment losses, lower surrender experience, and higher capital adequacy metrics. Overall, this operation has stabilized from the significant adverse effects of the financial crisis and AIG's unique place in it."  Highly significant! "The IFS rating is a stand-alone rating and does not reflect any uplift for U.S. Treasury ownership".  (emphasis added)

Members of AIG's Sun America Financial Group include the following current structured settlement annuity issuers: American General Life Insurance Company and United States Life Insurance Company In The City of New York; as well as former structured annuity issuers: Variable Annuity Life Insurance Company and Western National Life Insurance Company. AGC Life Insurance Company, an upstream holding company to American General  Life which guarantees the performance of the qualified assigmnment company that purchases American General Life annuities as an IRC 130(d) "qualified funding asset" was also upgraded/

Other AIG-related ratings such, as Chartis Insurance, were not affected by this action.

 

Unfortunately those structured settlement annuitants who panicked and sold their structured settlement payment rights may regret their decisions.

 

Perhaps the predatory "vultures" from Woodbridge Investments, LLC, who issued a press release soliciting AIG annuitants on September 18, 2008, can sleep a little easier tonight knowing that their "hoard" is deemed safer. 

Read the full Fitch press release on the AIG upgrade Download FitchRatingUpgrade20110425

 

The Morning (star) Chill Blows in on Bond Funds

If your financial adviser is recommending a bond fund over the "ultimate* in predictable income" of a structured settlement you better read this:

"Your bond fund may be riskier than you think.

For years, the fund industry and research firms have assessed the safety of bond funds by analyzing their holdings' underlying credit quality. Now, amid concerns that the measurement could understate the risk that the bonds will blow up, Morningstar has changed its methodology to count lower-rated bonds more heavily".   The Wall Street Journal September 25, 2010  "How Safe is Your Bond Fund?"

Research from the Securities Litigation & Consulting Group Inc., a Fairfax, Va., consulting firm that provides expert witnesses to regulators, law firms, banks and brokerages publishe din November 2009, found that the mutual fund industry often reported average credit-quality ratings that were at least one whole letter credit-rating higher than the portfolios' true credit risk.

Under the new Morningstar system

13.85% of domestic taxable bond funds had average credit ratings of AA, or investment grade status  (from 36.38%)

13.36% had average credit ratings of BB, or junk bond status

Notes

1. Structured settlements are funded by annuities issued by legal reserve lfe insurance companies or using obligations of the United States government.
2. Life insurance companies must certify an asset/liability match annually to each state their are admitted in.
3. A bond fund is not a bond
4. Since the net asset value of a bond fund may decrease over time it is possible, depending on the date you withdraw, that you may not get your principal back. How will the traditionally inverse relationship between interest rates and bonds affect the bond fund (and your capital) if yields increase in the coming years?

* a recent article in Investment News referred to immediate annuities as the "ultimate in predictable income"

Weiss Ratings: Strongest Structured Annuity Issuers

On June 10, 2010 Weiss Ratings updated its list of the strongest and weakest life insurance companies and annuity issuers. The following current and former structured annuity issuers made the list of the strongest annuity issuers. The Weiss rating for each company is shown.

• Allstate Life Insurance Company B+
• Amica Life Insurance Company A-
• John Hancock Life Insurance Company of New York A-
• Massachusetts Mutual Life Insurance Company A  (former structured annuity issuer)
• Pacific Life and Annuity Company A-
• New York Life Insurance Company A-
• New York Life Insurance and Annuity Corporation A-
• USAA Life Insurance Company A
In case you are not familiar with Weiss Ratings please note that "A+" is its highest rating

Also worth noting, there are no structured annuity issuers on the Weiss weakest insurer list.

Weiss Ratings is the only one of the major rating agencies that is not paid by the company it rates to give a rating. Some say this removes a conflict of interest.

New York Life Affirmed at AAA by Fitch as Outlook Stabilizes

Fitch Ratings announced today that it affirmed the ratings of New York Life Insurance Company at its highest rating of financial strength with a stable outlook. It has been a banner year for one of the nation's largest life insurance companies. IN march it was named the world's most admired life insurance company in an annual survey conducted for Fortune magazine.

Fortune's annual "World's Most Admired Companies" survey is conducted by the Hay Group, a respected survey firm. Hay asks executives, directors, and analysts to rate companies in their own industry on nine criteria.

New York Life insurance Company is currently the only structured annuity company with an AAA rating.

If you need a quote for a  New York Life Insurance Company structured annuity, or need a settlement planning consultation please contact John Darer at (203)325-8640

Weiss Group, LLC buys back Financial Institutions Ratings Business

Weiss Group, LLC, announced May 6, 2010 that it has bought back the bank and insurance company ratings company which it had sold to TheStreet  in 2006, restoring the business to its wholly owned subsidiary, Weiss Ratings.

Unlike A.M. Best, Moodys, S&P and Fitch, Weiss Ratings accepts no compensation of any kind from the companies it rates, deriving its revenues exclusively from the sale of ratings and data to consumers and others via public libraries and the Internet.

Read the Weiss press release  May 6, 2010

Rating Agencies Under Fire Again. This Time Over Sovereign Debt

" Even today, it as if nothing happened between '07 and '09" Joey McBrennan of Taipan Publishing on May 7, 2010,  “Too many people are relying on the rating agencies to determine the quality of their municipal bond holdings. What you’ll find, for those who don’t want to do the work, is that the rating agencies tend to downgrade a bond AFTER most people making the effort already know the bond is in trouble."

On May 5, 2010 Bill Gross of PIMCO aimed his turrets on the rating agencies over their failure to assess risk on sovereign debt on MSNBC.