Reading an insurer's financial strength before you buy an annuity

When you buy a fixed annuity, you hand a life insurance company a lump sum and it promises to return it, with interest or as income, over years or decades. Unlike a term policy, where you pay a small premium each month and can walk away, an annuity puts all of your money in one place at the start. That makes the strength of the company the first thing to check, ahead of the headline rate. This checklist walks through where to look, what each source can and cannot tell you and what to do with what you find.

No source in this list guarantees an outcome. Ratings are opinions, filings are snapshots and guaranty associations have limits. Used together, they let an ordinary buyer see whether a company belongs in the group of insurers that most long-term holders are comfortable with, and they help you spot the cases that deserve a second look. The point of reading them is to make a decision with open eyes, not to find a perfect company.

Why strength matters more for an annuity

A few features of annuities raise the stakes.

• The money is concentrated. A premium of $100,000 or more goes to one company on one day.
• The time horizon is long. A deferred annuity can run for decades, and an income annuity can pay for the rest of your life. A company that looks strong today has to stay strong through many economic cycles.
• The promise is a general obligation. A fixed annuity is backed by the insurer's general account, its pool of bonds, mortgages and other assets. Your claim ranks alongside other policyholder claims on that pool, and the pool's quality is the company's quality. See fixed annuity for how the contract works.
• A higher rate can reflect more risk. The guide on how annuity rates are set and why they move explains that rates come from what the insurer earns on its investments, less costs. A company that invests in riskier assets can offer more, which is not a free lunch.

Variable annuities differ in one respect. The investment subaccounts sit in a separate account kept apart from the insurer's general assets, so their value depends on the markets, not on the insurer's solvency. What the insurer's strength does protect are the guarantees layered on top: death benefits, living benefits and income riders. If you hold a variable or index-linked contract, it is the strength behind those promises you are checking.

Checklist 1: Collect the ratings

Rating agencies publish letter grades that express an opinion about an insurer's ability to meet its obligations to policyholders. The AM Best, S&P, Moody's and Fitch ratings explained guide explains all four main scales. For this checklist, the tasks are practical.

• Get ratings from at least two agencies, ideally three or four. AM Best, S&P, Moody's and Fitch each assess the same companies, and they sometimes disagree. Agreement is reassuring and a split deserves a question. Not every insurer is rated by all four.
• Take the rating from the agency or the company's ratings page, not from a sales brochure. A brochure can quote an old grade. The agency's press release or the insurer's investor or ratings page states the date.
• Write down the date of each rating. Ratings change. The guide cites a downgrade that AM Best made on March 13, 2026, after an ownership change at one insurer. Treat any grade as true only as of its date.
• Note the outlook and any "under review" tag. A stable outlook means no change is expected in the near term. A negative outlook or an under-review status means a change may be coming, which is a reason to ask what is driving it.
• Place each grade on its own scale. AM Best's strongest rating is A++ (Superior), and S&P and Fitch start at AAA, while Moody's starts at Aaa. Do not subtract notches across agencies, because the letters mean different things on each scale.
• Find out which entity was rated. A holding company, the group and the specific subsidiary that issues your contract can carry different ratings. The contract names the issuing company. Match the rating to that name.

Why each item matters: the point of collecting several ratings is to see the range, the date is what makes them current and the entity check avoids reading a parent's strong grade for a subsidiary that is rated lower. A single AM Best step, say from A+ to A, is not a warning by itself. Most large annuity writers sit in the secure ranges of every agency, so the useful distinction is between secure and vulnerable, not between adjacent letters.

Checklist 2: Know what the letters do not say

Ratings help screen out weak companies. They do not cover everything, and the agencies say so.

• A rating is not a prediction. The guide notes that a company can fail soon after a high grade. Executive Life, the California insurer seized in 1991 after junk-bond losses, is the standard example, documented by the Government Accountability Office (GAO T-GGD-92-13). See Life insurer failures in U.S. history.
• A rating says nothing about claims handling or service. AM Best states that its rating does not address claims-payment practices. Service quality shows up elsewhere, in complaint data.
• A rating is not a recommendation about a product. It covers the company's finances, not whether a particular annuity is a good fit for you.
• Ratings are paid for by the companies rated, in the usual model. That is one reason to look at several agencies and at the filings below.

Checklist 3: Look past the letter at the filings

Every insurer files detailed financial statements with its state insurance department each year, prepared under statutory accounting rules that are more conservative than the accounting in a stock-market report. You do not need to read a full annual statement, but you can learn from a few of its parts.

• Risk-based capital. The NAIC's formula sets a minimum capital cushion tied to the insurer's size and risk. Companies calculate and report it, and regulators act when it falls below set levels. The guide on risk-based capital and life insurer solvency explains the action levels. The NAIC itself says an RBC ratio is not a ranking, so use it as a floor to confirm that nothing is wrong, not as a way to compare two strong companies.
• Reserves and the asset mix. The statement shows how much the insurer has set aside (reserves) and what it holds against them. A heavy concentration in one risky asset class is a flag. The company's own investor materials, or the SEC filings of a public parent, describe the portfolio in plainer language.
• Ownership and reinsurance. Ask who owns the insurer and whether it has moved a large block of business to an affiliated reinsurer, including offshore. This can be sound or risky depending on the terms, and it is a legitimate question for an annuity buyer. The company's public disclosures, ratings reports and the annuity profile on this site are starting places.
• Regulatory actions. State insurance departments publish examination reports and enforcement orders. A search of the department's site for the company's name shows whether a regulator has fined it or placed conditions on it.
• Where to find them. The state insurance department of the company's home state holds the filings. Public parents file annual reports with the SEC.

Why it matters: ratings summarize these filings, but not always quickly, and a buyer who has read two or three items has a basis to ask the agent specific questions. For plainer introductions to the whole process, see reading an insurer's financial strength without being an analyst.

Checklist 4: Check service and conduct

• Complaint index. The NAIC publishes complaint data that compares an insurer's complaints with its share of the market, where 1.00 is the national baseline. The guide on The NAIC complaint index and how to use it explains how to read it and why a small company can look worse through a few complaints.
• Licensing. Confirm that the insurer is licensed in your state. The department's lookup tool or a phone call settles it. Guaranty protection depends on it.
• Annuity-specific conduct. Look for enforcement actions about annuity sales practices. These tell you something about how the company supervises the people who sell its products.
• Ask how to reach customer service for annuities. The policy owner's questions about withdrawals, tax forms or beneficiary changes go to a service department, and its quality matters for years.

Checklist 5: Understand the guaranty backstop

Every state has a life and health insurance guaranty association that steps in when an insurer is ordered into liquidation. It is a safety net funded by assessments on other insurers, not a reason to ignore the insurer's strength. The guide on state life and health guaranty associations explains the system, and the state guaranty association coverage lookup tool shows a state's figures.

• Find your state's annuity limit. According to NOLHGA's coverage table (information as of June 1, 2025), the common limit for annuity benefits is $250,000, and a few states are higher; for instance, the guide lists Minnesota at $410,000. The limit applies per person per insurer, and some states also cap the total across all types of benefits.
• Add up everything you hold with the same company. Death benefits, cash values and annuities under one insured person with one insurer are combined for the overall cap in states that have one.
• Know which state protects you. Protection follows your state of residence when the insurer is ordered into liquidation, not the insurer's home state.
• Remember what is not covered. Amounts above the limit, non-guaranteed credits and the investment risk in a variable account's subaccounts are not protected.
• Confirm the insurer is a member. Unlicensed or non-member companies are generally outside the system.

A hypothetical shows how the numbers work. Say a retiree in a state with a $250,000 annuity limit places $400,000 in a single annuity. If the insurer failed and the contract were fully covered by the limit and nothing else, $250,000 would be protected and $150,000 would become a claim against the failed insurer's remaining assets. The guide explains that such claims have often been paid in large part, but not always in full. The retiree might decide to divide the money among two insurers, $200,000 each, which would put each portion under the limit. That choice has costs: two contracts to track, possibly a lower rate on a smaller premium and two companies whose strength has to be checked. Many people find that a strong rating and a modest limit gap is acceptable, and others split. See building an annuity ladder for one method, and if an annuity company fails: how state guaranty coverage responds for how claims proceed.

Regulators do not want guaranty coverage used as a sales pitch. In many states agents are barred from advertising it. If someone tells you a weaker company is safe because the association will cover you, ask for the limit in writing and then go back to the first four checklists.

A worked comparison: rate against strength

Say two companies offer a five-year fixed annuity. Company A credits 4.60 percent and Company B credits 5.00 percent. Both are invented. Company A is in the secure range at all four agencies. Company B is rated at the lower end of the secure range by one agency, is not rated by another and carries a negative outlook at the first.

For a $200,000 purchase, the extra 0.40 point is worth about $200,000 × 0.004 = $800 a year, or roughly $4,000 over five years before compounding. Whether that is enough depends on how the buyer weighs the possibility of delay or loss if Company B were to run into trouble, on whether the amount exceeds the guaranty limit and on how long the money needs to stay put. Nothing in the arithmetic makes one answer correct. It does make the trade visible: the buyer who chooses B has agreed to take on extra risk for about $800 a year. Written down that way, many people reconsider.

A one-page summary to fill in

Before you sign, copy this into a note and fill in each line.

1. Issuing company's exact legal name: ______
2. AM Best, S&P, Moody's and Fitch ratings with dates: ______
3. Outlooks or "under review" notes: ______
4. Owner and parent, and any large reinsurance transactions: ______
5. Complaint index or notable regulatory actions: ______
6. Licensed in my state (yes or no): ______
7. My state's annuity guaranty limit and the total I will hold with this company: ______
8. What I would do if a rating fell by two notches: ______

Item 8 is the one most buyers skip. Deciding in advance what you would do, such as holding to maturity, using free withdrawals or asking an adviser, keeps you from reacting to a headline. If you have questions about the company's standing, your state insurance department (state insurance departments: what they do for you) is the neutral place to ask.

Key takeaways

• Because an annuity puts a large sum with one company for years, check the insurer's strength before comparing rates.
• Gather ratings from several agencies, with dates, outlooks and the exact entity that issues your contract, and compare each on its own scale.
• Ratings are opinions that do not cover claims handling or predict failures. Add regulatory filings, ownership, complaint data and licensing to the picture.
• A guaranty association is a limited backstop, commonly $250,000 for annuities as of June 2025, and it is not a substitute for choosing a strong company.
• Write down a decision rule in advance, including what you would do if the rating dropped.