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What Are AM Best ratings?

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Updated November 2, 2023

When buying a new insurance policy, you’re probably looking at factors such as coverage limits, features, and price. But what many consumers might not realize is that looking at an issuer’s financial stability and future strength projections is equally important, especially when buying a long-term product such as life insurance. 

Read on to learn what AM Best ratings are, what goes into the rating system, and why they should matter to consumers.

What does AM Best do?

AM Best is an international credit agency that specializes in the insurance industry, providing consumers and investors with an evaluation of the financial stability of each insurance carrier it evaluates. AM Best operates in more than 100 different countries and is currently the largest credit rating agency in the world. 

Generally, AM Best evaluates each insurance carrier on an annual basis (if not sooner) using a number of quantitative and qualitative data points. This allows the agency to grade carriers on financial stability, or how likely the company is to remain solvent in the future and able to pay out any financial obligations, such as claims. 

Using AM Best ratings, consumers can evaluate the strength of an insurance company when shopping around for coverage or deciding whether to keep a particular policy. While AM Best is not the only independent credit rating agency, it is the largest and one of the most frequently referenced. 

AM Best Rating system explained

The AM Best Financial Strength Rating (FSR) scale ranges from A++ through D, with multiple opportunities for “rating notches,” or a plus (+) or minus (-) sign that reflects a gradation of the company’s rating. In order, these ratings (with and without notches) are A++, A+, A, A-, B++, B+, B, B-, C++, C+, C, C-, and D. 

In addition to the FSR ratings, AM Best also has four non-rating designations. These are assigned to insurers that are either not rated, cannot be evaluated at that time, are under regulatory action, or are being liquidated. These ratings include E, F, S, and NR. 

AM Best also has what’s called a “u” modifier. This notation can be added to any ratings that are under review and AM Best deems subject to near change. A u modifier typically occurs when there is an abrupt change to an issuer’s financial status, or if there’s been a recent event that could impact its financial stability and outlook that warrants a closer look by AM Best.

How AM Best Ratings work

AM Best provides four types of ratings—all of which give an educated and data-driven opinion of the financial strength of a company (or in some cases, a security). These four ratings include:

  • Financial Strength Ratings (FSR), which are an opinion of each carrier’s financial strength and ability to uphold contractual obligations to policyholders.
  • Issuer Credit Ratings (ICR), which are an analysis of each entity’s ability to meet financial obligations on a short- and long-term basis.
  • Issue Ratings (IR), which analyze each carrier’s credit quality in the short- and long-term.
  • National Scale Ratings (NSR), which are a measure of an issuer’s creditworthiness in a specific, local jurisdiction on a long-term basis.

When consumers are evaluating an insurance company, they are typically just looking at the FSR, or financial strength rating. This tells potential customers whether a carrier is likely to remain financially secure and able to pay out claims in the future. 

How does AM Best develop financial strength ratings? 

In order to obtain an initial AM Best rating, companies must reach out to request an analysis. This fee-based process usually takes between 11 and 14 weeks to generate an initial rating, which the company can then accept, decline, or appeal. 

Using reliable sources and data—such as public filings, year-end financial statements offered by companies, and regulatory reports—AM Best gauges an issuer’s ability to meet its business obligations, such as paying out claims to consumers in a timely manner. AM Best also looks at each insurer’s philosophy, management practices, and operational structure to evaluate its financial stability and projected success.

AM Best then revisits these ratings on an annual basis (or earlier, if needed) to determine whether the rating is still valid or needs to be updated. 

Why AM Best scores matter

So, why are AM Best scores important in the first place? 

First and foremost, these ratings lend credibility to insurers, which helps both investors and consumers go into a transaction with peace of mind. This—combined with consumer reviews and elements such as the NAIC complaint index—make it easier to compare carriers against one another if you aren’t sure where to buy your next policy.

Consumers also may not recognize if an issuer is showing signs of financial instability, is dealing with regulatory violations, or has questionable business practices. The most updated AM Best ratings give consumers a better idea of what’s going on and how the carrier’s financial strength has changed.

Of course, AM Best ratings are not a guarantee of creditworthiness. They are just an opinion by the credit rating agency, albeit one based on a slew of data and research. 

AM Best Ratings for top providers

So which ratings would you expect the top insurance providers to have in the AM Best rating system?

In general, the top providers will hold at least a B+ or B++, which represents a Good and Very Good rating. A rating of B or B- represents a Fair scoring, while a C+ or even C++ are considered Marginal, so these aren’t typically seen with top providers.

Criticism of AM Best 

AM Best ratings are technically categorized as an opinion of the agency. Though much research goes into calculating these ratings, AM Best ratings still aren’t a guarantee of an issuer’s solvency and they don’t represent how the company operates on a day-to-day basis with consumers. 

AM Best ratings don’t represent formal complaints filed by consumers, which are tracked by the NAIC (National Association of Insurance Commissioners). It also doesn’t represent consumers’ everyday reviews based on their personal experiences with the issuer. If you want to learn more about how other customers find the claims process, issuer’s communication, and access to products and services, you’ll need to look on sites such as the Better Business Bureau (BBB) and TrustPilot.

How you can use financial strength ratings when shopping for life insurance

AM Best financial strength ratings (FSRs) can be a great tool for comparing life insurance, auto insurance, homeowners insurance, and other types of carriers to one another. 

They shouldn’t necessarily be the only resource you employ, but can be very beneficial for evaluating an insurer’s solvency and financial management. This is especially true if you are using a marketplace, like Smart Financial, to shop for coverage and may not know anything about the carriers being suggested. 

This gives you a strong idea of how the company manages its money and whether it will still be around to pay out a claim if and when you—or, in the case of life insurance, your beneficiaries—need to file one. Considering that term life insurance policies can last up to 30 or even 40 years, and whole life policies will follow you for the rest of your life, this projected carrier longevity and stability can give you the peace of mind you need. 

TIME Stamp: AM Best Ratings help arm consumers with critical information before making an important financial decision.

AM Best is a global credit rating agency that offers financial strength and credit ratings for insurance companies and select securities. These ratings can help consumers not only compare companies against one another but also evaluate how financially secure a company is before buying a policy. AM Best ratings are data-based but are still the agency’s opinion, so they can be a valuable tool in combination with other resources such as consumer reviews and complaint indices. 

Frequently asked questions (FAQs)

Is B++ a good AM Best rating?

According to AM Best, a B++ rating is considered Very Good. It is the third-highest rating level, just under Excellent (A- or A) and Superior (A+ or A++). 

Which rating is better, B or BB?

A B rating from AM Best represents a Fair rating for the company. This is interpreted as companies that have a fair ability to meet their financial obligations but may be vulnerable to economic shifts. AM Best does not offer a BB rating; instead, this is offered by Standard & Poor’s, another top rating agency. Based on the S&P scale, a BB rating represents a company with “marginal financial characteristics” in the near-term and major uncertainty in the long-term. 

For that reason, a B rating from AM Best appears to be slightly more favorable than a BB rating from Standard & Poor’s, though the two are relatively close.

Which grade is better, A or B?

Based on the AM Best rating scale, a grade of A is better than B. The A grade is considered an Excellent rating while B is only Fair.

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