What “Guaranteed” Actually Means
The word “guaranteed” appears everywhere in the annuity world. Guaranteed rates. Guaranteed income. Guaranteed death benefits. But there is an essential qualifier that often gets lost:
Claims-Paying AbilityClaims-Paying Ability
Every annuity guarantee is backed solely by the issuing insurance company’s financial strength and claims-paying ability. This is not a government guarantee. It is not FDIC-insured. It is not backed by any bank or federal agency. It is a contractual promise from a private company — and that promise is only as reliable as the company’s ability to keep it.
This does not mean annuity guarantees are meaningless. The U.S. insurance industry is one of the most heavily regulated financial sectors in the world, with mandatory reserves, capital requirements, and regular examinations by state regulators. Most insurers have honored their obligations for decades, through recessions, market crashes, and pandemics.
But “most” is not “all.” Insurance companies have failed. When they do, the consequences for policyholders can include delays in accessing funds, reduced benefits, or in rare cases, losses. The question is not whether the risk exists — it does — but how to evaluate it and make an informed decision.
The Rating Agencies: Who Evaluates Insurers
Four independent agencies evaluate insurance company financial strength. Each uses its own methodology, but they are measuring the same fundamental question: can this company meet its obligations to policyholders?
Agency: A.M. Best | Focus: Insurance industry specialist (since 1899). The most important rating for insurance carriers. | Top Rating: A++ (Superior) | How to Access: ambest.com (free lookup available)
Agency: S&P Global | Focus: Broad financial services. Rates larger insurers. | Top Rating: AAA | How to Access: spglobal.com
Agency: Moody’s | Focus: Broad financial services. Rates larger insurers. | Top Rating: Aaa | How to Access: moodys.com
Agency: Fitch Ratings | Focus: Broad financial services. Rates select insurers. | Top Rating: AAA | How to Access: fitchratings.com
A.M. Best is the one that matters most for annuity purchases. They rate more insurance companies than any other agency and have been doing it for over 125 years. If you only check one rating, check A.M. Best.
A.M. Best Ratings: What They Mean
Rating: A++, A+ | Category: Superior | What It Means: Strongest ability to meet ongoing obligations. Exceptional balance sheet, operating performance, and risk management. | Should You Buy?: Yes — highest confidence. These carriers have deep reserves and long track records.
Rating: A, A- | Category: Excellent | What It Means: Strong ability to meet obligations. Very strong financial position with minor vulnerability to adverse conditions. | Should You Buy?: Yes — the standard for most annuity purchases. The vast majority of annuities sold come from A-rated or better carriers.
Rating: B++, B+ | Category: Good | What It Means: Good ability to meet obligations, but more vulnerable to unfavorable economic conditions than higher-rated carriers. | Should You Buy?: With caution — see “The B-Rated Question” section below. Higher rates often come with these ratings for a reason.
Rating: B, B- | Category: Fair | What It Means: Fair ability to meet obligations. Vulnerable to adverse conditions. Marginal financial profile. | Should You Buy?: Generally not recommended for annuity purchases. The additional yield does not adequately compensate for the risk in most situations.
Rating: C++, C+, C, C- | Category: Marginal / Weak | What It Means: Marginal to weak ability to meet obligations. Very vulnerable. | Should You Buy?: No. Not appropriate for annuity purchases.
Rating: D | Category: Poor | What It Means: Under regulatory supervision or has been placed in conservation/rehabilitation. | Should You Buy?: No.
What the ratings evaluate
A.M. Best’s Financial Strength Rating is not a single number — it is a comprehensive assessment across four pillars:
- Balance Sheet Strength — Capital adequacy, quality and liquidity of investments, reserve sufficiency, reinsurance quality, and surplus (assets minus liabilities — the financial cushion).
- Operating Performance — Profitability, revenue stability, diversification of earnings, and ability to generate consistent returns from core operations.
- Business Profile — Market position, brand strength, distribution reach, product diversification, and competitive advantages within the insurance market.
- Enterprise Risk Management — How the company identifies, measures, and manages risk. Includes investment risk controls, catastrophe exposure, and governance quality.
The B-Rated Question: Higher Rates, Higher Risk
This is the conversation the annuity industry avoids. It is also the most important conversation for your money.
You have likely noticed that some carriers offer rates significantly higher than others. A 5-year MYGA from one insurer might guarantee 4.50%, while another guarantees 5.10%. The difference on $200,000 is $1,200 per year — $6,000 over the 5-year term. That is real money.
But there is often a reason behind the higher rate: the carrier paying 5.10% may carry a B++ or B+ A.M. Best rating, while the one paying 4.50% is rated A or A+. The lower-rated carrier needs to offer more to attract deposits because it has a weaker financial position.
What a B++ rating actually means
A B++ (“Good”) rating is not a failing grade. It means A.M. Best believes the company has a good ability to meet its obligations. Many B++ carriers are well-run companies building their businesses. Some are newer entrants. Some are subsidiaries of larger organizations. Some are established carriers that experienced a temporary financial event.
But “good” is not “excellent,” and the distinction matters when you are trusting a company with your retirement savings for 5–10+ years. A B++ carrier is more vulnerable to adverse economic conditions than an A-rated carrier. In a severe recession or credit crisis, the difference in financial cushion can determine whether a company honors its obligations without disruption.
The risk/rate tradeoff framework
Appropriate For:
- The rate advantage is meaningful (0.50%+ over A-rated options)
- The purchase is a modest portion of your total savings (not your entire nest egg)
- You are buying a shorter-term product (3–5 year MYGA — less time for things to change)
- You have other assets in FDIC-insured accounts and A-rated carriers
- You have researched the specific carrier — not just the rating, but the business, ownership, and financials
- You understand that the higher rate reflects higher risk
Not Suitable For:
- This is your only annuity or a large portion of your retirement savings
- You are purchasing a long-term product (10-year MYGA, income annuity, QLAC) — more time = more uncertainty
- You are buying for guaranteed lifetime income (you need the carrier to be solvent for 20–30+ years)
- You would be financially devastated if the carrier could not fully honor the contract
- The rate advantage is small (0.10–0.25% — not enough to justify additional risk)
- You have low risk tolerance and the uncertainty would cause stress
Our honest position:
Beyond the Letter Grade: Other Things to Check
A.M. Best ratings are the starting point, not the complete picture. Here are additional factors that indicate carrier strength:
COMDEX Score
A composite index that ranks an insurer’s ratings across all agencies on a 1–100 scale. A COMDEX of 90+ means the carrier is rated higher than 90% of all rated companies. Useful for comparing carriers that have ratings from multiple agencies.
Risk-Based Capital (RBC) Ratio
A regulatory metric comparing actual capital to required minimum capital. An RBC ratio above 300% indicates strong capital reserves; above 500% is very strong. State regulators can intervene when the ratio falls below 200%. You can request this from the insurer or find it in their annual statement filed with the state.
Years in business
A carrier with 100+ years of history has survived the Great Depression, multiple recessions, and the 2008 financial crisis. That track record has meaning. Newer carriers may be well-capitalized and well-managed, but they have not been tested by a severe economic downturn.
Total assets under management
Larger carriers (tens of billions in assets) generally have more diversified investment portfolios, stronger negotiating power with reinsurers, and more stable operating platforms. Size alone does not guarantee safety, but it provides a broader base of stability.
Investment portfolio quality
Insurers publish the composition of their investment portfolios in annual statements. A carrier heavily invested in investment-grade corporate bonds and government securities is managing risk differently than one concentrated in below-investment-grade bonds, commercial real estate, or alternative investments. If you are considering a larger purchase, reviewing the insurer’s investment mix is worthwhile.
Ownership and parent company
Some carriers are subsidiaries of larger financial groups. A B++ rated subsidiary backed by an A-rated parent company may have access to capital support that its standalone rating does not fully reflect. Conversely, a high-rated carrier owned by a private equity firm focused on extracting value may warrant caution regardless of the current rating. Understand who owns the company and what their long-term interests are.
How to Evaluate a Carrier Before You Buy
- Check the A.M. Best rating. This takes 30 seconds at ambest.com. If the carrier is rated below B+, stop here unless you have a specific, informed reason to proceed.
- Ask your agent for the COMDEX score and RBC ratio. A good agent will have this information readily available. If they do not, or if they deflect the question, that is a red flag.
- Look up the carrier’s history. How long have they been in business? Have they been through a downgrade? Were they involved in any regulatory actions? A simple web search often reveals useful context.
- Understand the rate in context. If a carrier is offering a rate significantly above the market average, ask why. The answer may be legitimate (new market entrant building a book of business, competitive pricing strategy) or it may signal that the carrier needs to attract deposits to shore up reserves. Either way, you should know.
- Diversify across carriers. Do not put all of your annuity savings with a single insurance company, regardless of its rating. Spreading across 2–3 carriers with different risk profiles is the single best risk management strategy available to you.
- Match carrier strength to product duration. If you are buying a 3-year MYGA, a B++ carrier may be a reasonable risk for a meaningful rate advantage. If you are buying a SPIA that must pay you for 30 years, an A+ carrier provides much more certainty over that time horizon.
What Happens If an Insurance Company Gets Into Trouble?
Insurance companies do not fail overnight. The process is gradual and heavily regulated:
- Rating downgrade. Rating agencies downgrade the carrier, signaling financial stress. This is usually the earliest public warning. Downgrades can trigger increased regulatory scrutiny.
- Regulatory intervention. State insurance commissioners have broad authority to intervene when a carrier shows signs of financial distress. This can include requiring additional reserves, restricting new business, or ordering changes to investment strategy.
- Conservation or rehabilitation. If the carrier’s condition worsens, the state may place it under conservation (temporary state control to stabilize operations) or rehabilitation (restructuring to return to solvency). During this period, policyholder benefits may continue, though surrenders and withdrawals may be restricted.
- Transfer to another insurer. In many cases, a healthy insurer acquires the troubled carrier’s book of business. Policyholders are transferred with their contracts intact. This is the most common resolution for distressed insurers.
- Liquidation (rare). In the worst case, the carrier is liquidated by court order. Policyholder claims are prioritized under state law and the state’s safety net mechanisms activate. Even in liquidation, policyholders have historically recovered a substantial portion of their benefits — but the process can take years and full recovery is not assured.
The key takeaway: the regulatory system provides multiple layers of protection before a worst-case scenario. Choosing a well-rated carrier significantly reduces the probability of ever reaching steps 3–5.