By Melissa Gannon, TheStreet.com

Many insurance companies that write annuities have suffered downgrades because of severe losses and capital deterioration. Many, however, have maintained strong capital levels that so far have cushioned the blow from the decline in the stock market.

Teachers Insurance and Annuity Association, better known as TIAA-CREF, is the largest annuity company to receive TheStreet.com Ratings' top ranking of A-plus. It lost $3.3 billion in 2008 but held $17.8 billion in capital at year-end. And John Hancock Life Insurance of New York, a subsidiary of Manulife Financial (Stock Quote: MFC), maintains an A rating despite the downgrade to B of two affiliates, John Hancock Variable Life Insurance Co. and John Hancock Life Insurance Co.

Highly rated companies may suffer problems during difficult economic times, but because of their historically sound practices, they have the capital built up to withstand tough times.

Other companies are in a tougher spot. Hartford Life Insurance and Hartford Life & Annuity Insurance, units of Hartford Financial Services Group (Stock Quote: HIG), have gotten hammered. So have Axa Equitable Life Insurance, a division of Axa (Stock Quote: AXA); and ING USA Annuity & Life Insurance, a part of ING Groep.

The financial strength of an insurance company writing the annuity is important. When an insurance company fails, fixed annuity holders are at the mercy of the state guaranty association limits on such contracts. State guaranty limits on annuity account values range from $100,000 to $500,000. The only exception to this would be if another insurer purchased the contracts and agreed to the terms.

Variable annuity holders are, in part, insulated when the insurer fails. If the contract is still in the accumulation phase, the assets are segregated and returned in full, minus any withdrawals, to the contract holder. If the contract is in the annuitization phase, the consequences are the same as with a fixed annuity, and the contract holder is at the mercy of the state guaranty association limits.

TheStreet.com Ratings issues financial-strength ratings on more than 400 insurers that underwrite annuity contracts. Below are among the top companies in the industry.

Tops in Their Field Company Domicile State TheStreet.com Financial Strength Rating 2008 Total Annuity Premiums ($Mil) TEACHERS INS & ANNUITY ASN OF AM NY A+ 13,001.9 STATE FARM LIFE INS CO IL A+ 1,125.7 COUNTRY LIFE INS CO IL A+ 108.5 STATE FARM LIFE & ACCIDENT ASR CO IL A+ 48.4 AMERICAN FAMILY LIFE INS CO WI A+ 41.3 NEW YORK LIFE INS & ANNUITY CORP DE A 9,401.2 MASSACHUSETTS MUTUAL LIFE INS CO MA A 8,737.2 PACIFIC LIFE INS CO NE A 5,924.6 NEW YORK LIFE INS CO NY A 3,754.9 FIDELITY INVESTMENTS LIFE INS CO UT A 2,150.6 USAA LIFE INS CO TX A 1,448.1 JOHN HANCOCK LIFE INS CO OF NY NY A 1,217.3 FORT DEARBORN LIFE INS CO IL A N/A SENTRY LIFE INS CO WI A 290.8 SOUTHERN FARM BUREAU LIFE INS CO MS A 249.2 AMERICAN FIDELITY ASR CO OK A 106.0 AUTO-OWNERS LIFE INS CO MI A 91.2 TENNESSEE FARMERS LIFE INS CO TN A 49.6 GUARDIAN LIFE INS CO OF AMERICA NY A 30.0 UNITED FARM FAMILY LIFE INS CO IN A 12.7 SOURCE: TheStreet.com Ratings

TheStreet.com Ratings determines the financial strength of an insurance company through measuring a company's performance over time in many areas, including capitalization, profitability, investment safety, liquidity and stability of operations. Insurers with the highest financial-strength ratings are those with strong risk-based capital, consistent earnings over time, a conservative investment portfolio, and steady long-term growth.

 

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