Comdex Ranking Explained: 12 Essentials For Insurance

What Is the Comdex Ranking of Your Insurance Company?

When shopping for life insurance, disability insurance, or annuities, understanding the financial strength of insurance companies becomes critical. One of the most important tools available to consumers and financial professionals is the Comdex ranking. This comprehensive guide explains what Comdex rankings are, how they work, and why they should factor into your insurance decisions.

Understanding Comdex Rankings

A Comdex ranking is a composite index that combines financial strength ratings from multiple rating agencies into a single numerical score for insurance companies. Rather than trying to decipher ratings from four different agencies using different methodologies, the Comdex simplifies the process by presenting all this information on a unified 1-100 scale.

The term “ranking” is important here. Comdex scores are not themselves ratings; they are percentile rankings that show how an insurance company compares to other companies in the market. This distinction matters because it helps consumers understand that a Comdex score of 80 doesn’t necessarily mean 20 companies are better—it means the company ranks better than 80 percent of all other evaluated insurance companies.

The Rating Agencies Behind Comdex

The Comdex ranking system pulls data from four major insurance rating agencies that are widely recognized and accepted in the financial industry. Understanding these agencies helps explain why Comdex was developed in the first place.

A.M. Best specializes in evaluating the financial strength of insurance companies and is one of the oldest rating agencies in the industry. Standard & Poor’s (S&P) provides ratings based on an insurance company’s ability to repay debt and pay claims to policyholders. Moody’s Investors Service assesses credit risk and financial stability, having served as a Nationally Recognized Statistical Rating Organization since its establishment in 1914. Fitch Ratings, with over 100 years of experience, rates more than 20,000 business entities worldwide, including insurance companies.

To receive a Comdex ranking, an insurance company needs ratings from at least two of these four agencies. This requirement ensures that there is sufficient data to create a meaningful average score.

How the Comdex Rating Scale Works

The Comdex uses a 100-point scale that represents percentile rankings rather than absolute ratings. Here’s how to interpret these scores:

A Comdex score of 85 means an insurance company ranks in the top 15th percentile of all rated insurance companies, or stated differently, the company is rated higher than 84 percent of all insurance companies. This percentile-based approach makes it far easier for consumers to understand company rankings at a glance compared to reviewing four separate rating scales with different methodologies.

Many individuals shopping for insurance products find the single numerical score far more intuitive than attempting to understand the nuances of four different rating systems. Each rating agency employs its own methodology and uses different letter grades or numerical scales, making direct comparisons difficult without specialized knowledge.

The Rating Methodologies of Each Agency

Different rating agencies use different scales and assessment criteria. Understanding these variations illustrates why the Comdex was created to standardize comparisons.

A.M. Best Rating Scale

A.M. Best uses letter grades ranging from A++ (Superior) at the highest level to D (Poor) at the lowest, with intermediate ratings like A+ (Superior), A (Excellent), B++ (Very Good), and others in between.

Standard & Poor’s Rating Scale

S&P’s ratings, based on the ability to repay debt and pay claims, include:

• AAA (Extremely strong)
• AA+, AA, AA- (Very strong)
• A+, A, A- (Strong)
• BBB+, BBB, BBB- (Adequate)
• BB+, BB (Faces major future uncertainties)
• B (Faces major uncertainties)
• CCC (Currently vulnerable)
• CC (Currently highly vulnerable)
• C (Has filed for bankruptcy)
• D (In default)

Fitch Ratings Scale

Fitch’s long-term credit ratings include:

• AAA (Best companies)
• AA (Quality companies)
• A (Economic situation may be a factor)
• BBB (Medium class companies)
• BB (Companies prone to changes)
• B (Companies whose financial situation varies)
• CCC (Currently vulnerable companies)
• CC (Vulnerable companies)
• C (Highly vulnerable companies)
• D (Companies that have already defaulted)

Moody’s Rating Scale

Moody’s bases ratings on credit risk and includes:

• Aaa (Lowest risk)
• Aa1, Aa2, Aa3 (Very low risk)
• A1, A2, A3 (Low risk)
• Baa1, Baa2, Baa3 (Moderate risk)
• Ba1, Ba2, Ba3 (Substantial risk)
• B1, B2, B3 (High risk)
• Caa1, Caa2, Caa3 (Very high risk)

How the Comdex Score Is Calculated

The Comdex score calculation process involves several steps to ensure accuracy and fairness across all rating agencies.

First, the Comdex system counts all rated companies from each agency and divides them into percentile categories based on their ratings. For example, if A.M. Best rated 100 carriers and only five received the top rating, those five would be placed in the 100th percentile. If the next 20 companies received the second-highest score, they would be placed in the next percentile tier, and so on.

After all four agencies have their carrier lists compiled, sorted, and calculated, the individual percentile scores are tallied up and averaged for each carrier. Here’s a concrete example: if an insurance company received a 90th percentile rating from A.M. Best, an 85th percentile rating from Fitch, and an 80th percentile rating from Moody’s, the Comdex score would be calculated as follows: (90 + 85 + 80) ÷ 3 = 85.

It’s important to note that Comdex scores update every few weeks, and each score is subject to change at any time as companies’ financial positions evolve.

Why Comdex Rankings Matter

Comdex rankings provide several important benefits for insurance consumers and professionals. First, they simplify the comparison process. Rather than trying to understand four different rating scales with different methodologies, consumers can focus on a single, easy-to-understand number.

Second, they provide a standardized way to assess financial strength. Rating agencies determine their ratings by assessing a company’s debts, ability to pay claims, and ability to meet financial obligations promptly. The goal is to provide consumers with insight into how financially strong each company is and whether it represents a safe investment.

Third, they offer accessibility. Not all insurance companies have ratings from all four agencies, and some may not be rated at all. The Comdex system works with companies that have ratings from at least two agencies, expanding the universe of companies that can be compared.

Highly Rated Insurance Companies

Several insurance companies consistently earn strong Comdex ratings and are recognized as among the most financially sound and stable in the industry. These companies represent solid choices for consumers seeking life insurance, disability insurance, or annuity products:

• Nationwide
• Lincoln Financial
• Pacific Life
• Principal
• Penn Mutual
• Minnesota Life
• John Hancock
• Guardian
• MassMutual
• Ohio National
• Ameritas
• The Standard

Understanding What Comdex Does and Doesn’t Tell You

While Comdex rankings provide valuable information about financial strength, they have important limitations. Comdex rankings are not an in-depth view into an insurer’s position in the market, nor do they provide any information on specific policies. A high Comdex ranking indicates financial stability but says nothing about policy features, benefits, costs, or how well a particular product might suit your individual needs.

Additionally, different rating agencies may focus on different aspects of financial health. Some may emphasize debt management, while others focus more on claims-paying ability. The Comdex average smooths out these differences, which simplifies comparison but may obscure nuances important to some investors.

Tools for Accessing Comdex Information

Several resources provide Comdex rankings and related financial information. VitalSigns is one such tool that provides carrier financials and ratings for more than 500 insurance companies. VitalSigns uses yearly financials reported to the National Association of Insurance Commissioners (NAIC) and ratings from the five leading rating services. The platform qualifies a carrier’s financial strength quickly and reliably through easy-to-understand reports, and provides financial charts and tables for a more in-depth look into each company’s overall health.

Frequently Asked Questions

Q: What does a Comdex score of 75 mean?

A: A Comdex score of 75 means the insurance company ranks in the 75th percentile, indicating it is ranked higher than 75 percent of all rated insurance companies, or conversely, lower than 25 percent.

Q: Can an insurance company have a Comdex rating if it only has ratings from one agency?

A: No. An insurance company requires ratings from at least two of the four major rating agencies to receive a Comdex score. This requirement ensures sufficient data for an accurate composite ranking.

Q: How often do Comdex scores change?

A: Comdex rankings update every few weeks. Each score is subject to change at any time as insurance companies’ financial positions evolve and rating agencies adjust their assessments.

Q: Is a high Comdex score enough to choose an insurance company?

A: While a high Comdex score indicates strong financial stability, it should not be your only consideration. You should also evaluate specific policy features, benefits, costs, customer service reputation, and how well the product meets your individual insurance needs.

Q: What is the difference between Comdex ratings and individual agency ratings?

A: Comdex provides a composite score that averages percentile rankings from multiple agencies on a 1-100 scale. Individual agency ratings use their own methodologies and scales. Comdex simplifies comparison by standardizing these different approaches.

Q: Are all insurance companies rated by all four agencies?

A: No. Insurance companies may be rated by different combinations of the four agencies. Larger, more established companies are more likely to have ratings from multiple agencies, while smaller insurers may have fewer ratings.

Conclusion

The Comdex ranking system provides an invaluable simplified approach to comparing insurance companies’ financial strength. By consolidating ratings from multiple agencies onto a single 1-100 percentile scale, Comdex makes it easier for consumers and professionals to make informed decisions about insurance products. While a strong Comdex score indicates financial stability and claims-paying ability, it should be one of several factors you consider when selecting an insurance company. Understanding how Comdex works and what it represents empowers you to evaluate insurance companies more effectively and choose coverage that aligns with both your financial needs and your desire for a stable, reliable insurer.

This article is general information, not personal financial advice. Consider your own situation, or speak with a licensed adviser, before acting on it.