What happens when an Insurance Company gets down rated? -

Say an insurance company got down rated from an Admitted A-7 in best rated guide to a B++ Well, from the customer's point of view - nothing. But the AGENT should start getting a bit antsy about it, and monitor the situation. Once a carrier's rating drops low enough - usually below a b+ - the agent's errors and ommissions coverage won't cover any claims for policies placed with that carrier. If you're acting as your OWN agent, well, ya get what you pay for!! That means they are less liquid, in the case of a catastrophe, they are less able to pay out all of the claims, more risky of an insurance company. When an Insurance Company gets down-graded it means they are less liquid, and less able financially to meet their financial commitments - such as paying claims. When an insurance company is down-graded, they will probably write less insurance premium than the previous years because clients are less likely to buy insurance from them. Also, independent agents may be less likely to use them to place coverage. Also, since they are bringing in less premium, and still having to pay for new claims and existing claims, the trend of remaining at a B++ or getting an even lower rating in the near-future may be probable. They either have to increase written premium by lowering rates, which will hurt them in the long-run, or they need to reduce overhead (jobs) and other expenses, such as, lower their cost of reinsurance. Either way, once a company is down-graded, the chance of remaining at the new rating or being down-graded again is probably higher than receiving an up-grade any time soon. Usually the most significant result of being down rated is a drop in the price of stock. A lot depends on why the down rating. Many times a down rating is due to something that may happen in the future if things keep going the same way. For example over-paying CEOs, allowing them to borrow money from the company without a very good plan to pay the money back MAY cause the company to be down rated until that problem is cleared up. On the other hand if the company is being down rated for a more serious offense, such as not keeping the legal amount of reserves after being notified about this, not paying a significant amount of legitimate claims, not following the laws of each state that they write policies in, or any serious illegal act that continues after notification, then the company may be in trouble. But again, the insurance company can dig themselves out if they are willing to cut expenses and fix the errors. As an insurance company employee, a person should be concerned about a down rating because of the potential layoffs to cut expenses AND sometimes an insurance co with a lowered rating is easy pickings for other insurance companies to buy up. As an insured, a person should try to figure out why the insurance company was lowered and then make the decision to stick with that company or not. As a stockholder in an insurance company, you would have the inside track as to why the down rating, also many very good insurance companies have had an issue of down rating only to rise again a leaner and more efficient organization. Nothing really happens. I wouldn't focus on the rating of any one rating institution by itself. Either check out each one individually or find the Comdex rating which is a type of numeric compilation.