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.

 

Comments

[Risa Lower]

As a P.S., if the industry doesn't think the Weiss ratings are a true reflection of the structured settlement carriers, or are on a par with the other ratings companies, you should see what they do to banks! They masticate them!

[Risa Lower]

Many plaintiff's attorneys believe in Weiss ratings since so many of the failures of insurance companies in the late '80's and early '90's were not reflected in ratings prior to their problems. Although some of the systems may have been improved, it is still true that ratings are based on past performance, and with the economy as it is, this just may not be enough.
Attorneys have long memories when it comes to anything that leaves them needlessly sleepless or worrying about the future. With the possibility of more problems with Executive Life (of New York) rearing up bad memories, getting a broad spectrum of ratings and opinion can't hurt. Way to go, John.