Does the insurance provider credit rating important enough to pay higher premium for simple product?

Hi anon,

Although I do not know what coverage amount or type that you are looking at, know that the payout from your policy is protected by the policy owner's protection scheme. (More information here: https://www.sdic.org.sg/public ) In summary, your payout is guaranteed by MAS (up to certain limits), even in the unlikely event of the failure of an insurer.

Credit rating is more of a measurement of the ability of a company to repay its debt. Note that debt can come in many forms, and insurance claims are just part of the equation. Credit rating is probably more appropriate when talking about whether a company is worth investing into. But you are not investing into either company. You are buying a policy!

Considering that an equally important, if not, more important factor is the capital adequacy ratio of the insurer (which is a measure of how 'prepared' the insurer is to pay potential claims), then we should also evaluate both insurers on this basis.

Based on Prudential's annual report (https://www.prudential.com.sg/-/media/prudentia...), their CAR ratio has been 206%/207% in the 2 years leading up to 2019.

Based on Aviva's disclosure (https://www.aviva.com.sg/content/dam/aviva-publ...), their CAR ratio has been 212%/246% in 2018 and 2019 respectively.

Thus I would say that both insurers have set aside more than enough funds to pay potential claims, with Aviva having a healthier buffer. In this case, unless there is something very special about the Prudential plan, go for the cheapest option.

Lastly, about the link between an insurer's credit rating and the pricing of the product. Pricing is largely due to acturial numbers (i.e. the cost of the insurance, claims must balance premiums collected at least), followed by costs of business, profit margins, etc, and I would say that credit rating alone cannot be the reason that one insurer is more pricey than another. I'm sorry but that statement put forth by your advisor that 'credit rating of prudential is the reason for higher premiums' isn't quite correct in my view.

I also got mine from Aviva.

Anyways, Aviva's credit rating is A-, which is not that bad lah. I don't agree in my opinion that the credit rating difference between the two companies justifies the $1000 SGD difference lol.

Cheers.

- Jeffrey (jeffreyleezq.com)