Credit ratings agencies hold a strange position right now: They’ve been reviled for previously giving the thumbs-up to investments that have helped unleash an economic plague. Yet, in these nail-biting times, many investors hang on their every move and companies’ stock prices are still contingent on what ratings agencies say.

Investors are “hair-trigger berserk” right now, in the words of TowerGroup research director Karen Pauli, and the slightest of downgrades sends shares tumbling inordinately in the current touch-and-go stock market.

Many companies are in a vicious downward spiral that is particularly evident right now, said Gerald Epstein, an economics professor at the University of Massachusetts Amherst. An initial downgrade is usually followed by an exodus of investors and sometimes customers as well, which in turn leads to further downgrades by ratings agencies.

Simply The Best

A.M. Best’s ratings matter most to insurance companies, as current and potential customers watch carefully to see what Best has to say about a company’s ability to make good on its financial obligations, Pauli said.

Still, the other three general agencies – Standard & Poor’s, Fitch Ratings and Moody’s Investor Services – are also of keen interest to investors. Usually the marks run from increasingly rare AAA ratings to growing ranks of B-level ratings, which are leaving many insurance companies at the bottom levels of “investment grade” ratings and closer to riskier, much less-desirable “speculative grade” areas.

The outlook is fairly bleak for the insurance industry overall; a Standard & Poor’s spokesman said although the industry is strong relative to other sectors, the outlook is negative for most insurance companies.

While Massachusetts-based insurers’ ratings have slipped along with many others in the industry, MassMutual Financial still has a AAA rating from S&P and Fitch. John Hancock has slid downward since the beginning of the year, posting up.

Meanwhile, Liberty Mutual and OneBeacon Insurance occupy a similar ratings range, garnering a couple A- ratings from S&P and Fitch, as well as A ratings and a stable outlook from A.M. Best.

Wait A Minute

But the stories behind those ratings are quite different, Pauli said: Liberty Mutual posted up inceased profits in 2008, but it was downgraded after its recent acquisition of Safeco, not because of any exposure to toxic assets in the housing market. On the other hand, OneBeacon Insurance is in a similar range for ratings, but Pauli attributes that to OneBeacon’s troubled investment portfolio.

Pauli said although public furor has been diverted elsewhere in the months since the financial crisis hit, she expects that ratings agencies won’t escape serious regulatory changes.

Epstein, who has written critically of the ratings agency structure, said he expects angry Europeans to help push for reform. Plenty of overseas investors looked to ratings agencies for their investment advice, he said, and they’re looking for blood right now.

Regulators will likely aim to make agencies’ inner workings more transparent, and will aim to make companies better at looking for long-term outcomes, instead of the current short-sighted view.

“Right now, they’re just adding to the whole short-term nature of our markets,” he said.