This brief guide will help you better understand the meaning of the term “financial strength,” and find out why it is so often mentioned in articles relating to pension risk transfer (PRT). If you’re here to learn what financial strength means, and why it is important in PRT, read on to learn more.
What is financial strength?
A company’s financial strength, also known as financial health, is primarily based on its profitability, as well as its liquidity, solvency and operating efficiency.
What is a financial strength rating?
The financial strength of insurance companies is rated by independent agencies. The five big names to look out for in terms of financial strength ratings are:
- A.M. Best Company Inc.
- Fitch Ratings
- Kroll Bond Rating Agency (KBRA)
- Moody’s Investor Service
- Standard & Poor’s Insurance Ratings Services
Each of these companies has its own methods of rating financial strength and uses different rating codes.
Why is financial health important?
Financial strength indicates how successfully a company is doing business. A financially strong company will be in a better position to grow, repay its debts, turn a profit and meet its financial obligations.
Financial strength and pension risk
If you are looking into pension risk transfer solutions, it is essential that you choose a financially strong company to take on your pension risk. When you choose to transfer pension risk through solutions such as annuities, you are transferring the financial risk associated with your pension plan to the insurance company you choose to work with. You are putting your trust in this company to provide for your pension plan participants.
The PRT company you choose should have vast experience managing long term risk and good financial strength ratings that suggest they will be able to easily meet their financial obligations.
Working with a financially strong PRT company can benefit you
By choosing to work with a financially strong provider of pension risk transfer solutions, you can transfer the risk associated with your defined benefit pension plan away from your company.
Pension risk transfer solutions enable you to keep your promise of financial security to your pension plan participants, without the continued risk associated with the pension plan. Pension risk transfer solutions include annuities, which ensure pension plan participants continue to receive guaranteed monthly income for life, and lump sum pension buy-outs.
Our financial strength is one of the many reasons Legal & General Retirement America is a great option for providing pension risk transfer solutions to protect your business and pension plan participants.