Ask the expert: What is the impact of rating downgrades?

The question was: My client wants to settle a policy that was issued by an insurer that has just experienced a ratings downgrade. Will this affect the prospects for a settlement?

The answer is: Maybe. It depends on a) what the original rating was before the downgrade, and b) the severity of the downgrade.

Typically, policies issued by insurance companies with lower ratings are considered to be “higher risk” policies, which may result in a discounted valuation. However, carrier ratings are just one of several factors that affect the value of a policy.