In what is the first of a many ratings revisions by increasingly nervous credit rating agencies, Hartford Financial had their life market downgraded to an A rating by A.M. Best yesterday in the latest blow to the structured settlement industry and their life markets that fund structured settlements.
While an A rating is still a very good, safe and secure rating, the business impact on Hartford in the structured settlement market will be immediate and substantial.
This angst is directly related to the fact that over the years the major structured settlement firms made a big deal out of creating " approved lists" for life markets in order for them to be included in their in house program of companies. Also many state and federal agencies and laws require A+ ratings as well in order to fund structured settlements for minors or incompetents. The net effect is a drop to an A rating is not a kiss of death but it does significantly reduce the number of markets available for key blocks of business and take the life company into a financial purgatory where they aren't even in the game on many cases.
So, what do I hear this morning but rumors that one of the big structured settlement firms is going to make a push to try and get "A" ratings to become the new "A+" in recognition of the turmoil in the financial markets and increasingly timid rating agencies who fear being sued if one of their credit analysis goes south, ala Confederation Life and Executive Life almost 20 years ago.
On one hand, I agree that we need to reappraise credit rating value when we are in unprecedented times, but on the other hand I don't agree as this is nothing more then moving the goal line back 15 yards so kickers with a weak leg can reach a goal post that is now suddenly out of reach. How about we as an industry take a hard look at why certain markets are still A+ and certain markets are not? The fact is some life markets have stronger management, more conservative financials and don't chase bad business and the net result is they enjoy stellar ratings. Other companies are not as well managed, make questionable business decisions at times and consequently their ratings will periodically suffer.
Instead of dumbing down the grade so that the big boys in the business can still play ball, how about we take the time to explain to our clients why certain A rated companies are still solid bets for various durations of risk and others are not? If this recent move is one more stake in the heart of the " approved list " mentality that permeates our business, I am certainly all for it. Lets not forget for one minute that the party ultimately at risk in a structured settlement is the injured party who depends on that monthly check, not the casualty company or self insured who is given a total and complete release of future obligations when a qualified assignment is executed.
Lets stop leaning on rating agencies to be defacto endorsements and safety nets for our recommendations and start looking at our life markets with an eye toward matching risk, size, quality and pricing so that the plaintiff is adequately protected.
Bottom line, if "approved lists" didn't exist, would a rating move from "A+" to "A" be as big a deal? I don't think so.