Understanding Comdex Scores and Insurance Company Financial Strength

Introduction?

A sterling Comdex Score isn’t the only factor someone should consider when choosing an insurer. Here’s why, and some other data points that might matter more.

When it comes to evaluating insurance companies, many professionals turn to the benchmark of financial strength known as the Comdex Score. The score is a ranking of insurers relative to their peers. If an insurer earns, say, a 90 rating, that means it’s more financially stable than 89% of its competitors. Sounds great, right?

But while the Comdex Score offers valuable insights, it only tells part of the story.?

That’s because the U.S. insurance industry's robust regulatory framework and conservative financial practices create a foundation of stability that makes even moderately rated companies generally sound. In the five years since the pandemic started, for example, there have been only 16 major bankruptcies in the insurance industry — just over three per year — and nearly half of those have been property damage insurers in Florida, where natural disasters make that industry especially volatile.

In other words, a sterling Comdex Score isn’t the only factor someone should consider when choosing an insurer. Instead, other important factors that Comdex doesn’t consider —including customer service and policy terms — deserve equal consideration in the selection process.?

What is Comdex??

Comdex is a composite score that provides a comparative ranking of insurance companies based on their ratings from major rating agencies. The primary purpose of Comdex, and ratings in general, is to assess the financial strength of an insurance company.?

How Comdex Works?

• A Comdex Score of 90 indicates that a company's ratings are higher than 89% of all rated insurance companies.

• A score of 80 means the company's ratings exceed 79% of insurance companies — still a vast majority.

• Important note: Comdex scores show relative standing rather than absolute financial strength. It’s possible, for example, that an insurer with a score of 80 is nearly as strong as one with a score of 90, while one with a score of 90 might meaningfully trail one with a score of, say, 92.

• To put it another way, think about NFL quarterbacks. There are 32 starting QBs in the league, but in a given year, the difference between, say, the best and the 10th-best might be huge, while the difference between the the 10th-best and the 15th-best might be relatively small. (And even the worst NFL starting quarterback is still one of the best football players on the planet.) Comdex Scores work a little like that — the underlying stats might not be clear from the rankings alone.

Context of Insurance Company Financial Strength?

Insurance companies in the United States generally maintain strong financial positions due to:?

• Stringent regulatory requirements for reserves and capital.

• More conservative reserving practices compared to banking (which uses fractional reserving).

• A robust regulatory framework designed to protect policyholders.

Historical Perspective: The 2008 Financial Crisis?

The resilience of the insurance industry is demonstrated by the 2008 financial crisis:?

• Only one major insurance company failure occurred (AIG)?

• AIG's failure stemmed from their banking operations, not insurance activities?

• Despite having high ratings before its collapse, AIG's insurance claims were still paid due to a federal bailout.?

This case highlights both the general stability of insurance companies and the potential limitations of rating systems?

Limitations of Comdex Scores?

Relative vs. Absolute Strength?

The main challenge with Comdex is that it doesn’t do what people think.

Producers use Comdex to assess an insurance company’s strength, but Comdex can only tell you how a company compares to others. A Comdex score of 80 doesn't indicate financial weakness. Being stronger than 80% of insurance companies in a heavily regulated industry still implies significant financial stability. Think about the strength of the industry in the 2008 financial crisis. Insurance companies are built for resilience.?

Policyholder Treatment??

What we think matters most is how a carrier treats its clients, which is something Comdex does not measure. Here’s a dirty secret: The ability to raise prices on policyholders is often viewed positively by rating agencies (and therefore drives higher Comdex scores).

Need proof? Here's an excerpt from one rating agency’s comments about a major whole life carrier:?

“Many other mutual companies have long since deemphasized whole life sales, which we think have the most favorable risk profile of traditional individual life products because of their profit-sharing characteristics (whereby policyholders dividends can be reduced if losses occur)...” [Emphasis added.]

The rating agency sees passing losses to consumers as a rating positive... How is that good for your clients??

Better Evaluation Criteria?

Instead of sweating whether a company's Comdex score is 85 or 95, focus on:?

• Their track record of treating customers fairly (especially their in-force clients).

• Competitive pricing that doesn’t rely on gimmicks.

• Company history of changes to dividends, fixed credits, index caps, or COI increases.

Importantly, if a carrier looks great on these metrics, don’t rule it out just because it has a Comdex under 90.

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The Bottom Line?

Is a Comdex score worth knowing? Sure. Should it be your primary decision factor? Absolutely not.?

The difference between an 80 and a 90 score may be less significant than the difference between good and bad client service or favorable and unfavorable policy terms.

Takeaways:?

• While very low ratings should raise concerns, moderate to high Comdex Scores (like 80+) generally indicate adequate financial strength.

• High Comdex Scores do not guarantee good policyholder treatment.

• Consider Comdex as one of many factors in your evaluation process.

• Focus on the company's track record with customers and overall business practices rather than relying solely on ratings.