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What is AM Best?
This ratings agency focuses on financial strength in the insurance industry.
If you’ve researched life insurance companies, you might have seen insurers highlighting their AM Best rating. And it’s for good reason. Founded in 1899, AM Best is one of the largest financial rating agencies in the world, and it focuses exclusively on the insurance industry, which includes:
- Life
- Property
- Casualty
- Annuity
- Accident
- Health
- Composite
- Moody’s
- Fitch
- Standard & Poor
As a policyholder, the major thing to remember is this: The higher the rating, the better position an insurer is to pay out claims.
What are AM Best financial ratings and why are they important?
AM Best issues financial strength ratings for the insurance industry. These ratings point to an insurer’s ability to meet its obligations to policyholders, like paying claims.
Since your beneficiaries might not file a claim for years or decades, it’s essential to choose a life insurance company that has the cash reserves to pay out claims — and that’s what AM Best ratings illustrate.
How AM Best financial ratings work
When weighing insurers, AM Best assigns a lettered rating, which may have a plus or minus sign attached. These letters are linked to a category that describes the insurer’s ability to meet its financial obligations.
The best possible rating is A++ (Superior), and the worst is D (Poor).
To determine a rating, AM Best gathers public and proprietary financial information about the insurer, such as its balance sheet, operating performance, distribution channels and risk-management profile. A committee then uses this data to perform a qualitative and quantitative analysis of the insurer’s financial stability, and issue a rating.
AM Best ratings scale
These are the AM Best ratings from highest to lowest.
| Symbol | Category | Description |
|---|---|---|
| A++ and A+ | Superior | “Assigned to insurance companies that have, in our opinion, a superior ability to meet their ongoing insurance obligations.” |
| A and A- | Excellent | “Assigned to insurance companies that have, in our opinion, an excellent ability to meet their ongoing insurance obligations.” |
| B++ and B+ | Good | “Assigned to insurance companies that have, in our opinion, a good ability to meet their ongoing insurance obligations.” |
| B and B- | Fair | “Assigned to insurance companies that have, in our opinion, a fair ability to meet their ongoing insurance obligations. Financial strength is vulnerable to adverse changes in underwriting and economic conditions.” |
| C++ and C+ | Marginal | “Assigned to insurance companies that have, in our opinion, a marginal ability to meet their ongoing insurance obligations. Financial strength is vulnerable to adverse changes in underwriting and economic conditions.” |
| C and C- | Weak | “Assigned to insurance companies that have, in our opinion, a weak ability to meet their ongoing insurance obligations. Financial strength is very vulnerable to adverse changes in underwriting and economic conditions.” |
| D | Poor | “Assigned to insurance companies that have, in our opinion, a poor ability to meet their ongoing insurance obligations. Financial strength is extremely vulnerable to adverse changes in underwriting and economic conditions.” |
Source: AM Best Ratings Guide – http://www.ambest.com/ratings/guide.pdf
Other AM Best ratings you might come across
These symbols aren’t ratings — they’re designations that point to issues or circumstances surrounding an insurer.
| Designation symbol | Description |
|---|---|
| E | “Status assigned to insurers that are publicly placed via court order into conservation or rehabilitation (or the international equivalent). In the absence of a court order, clear regulatory action has been taken to delay or otherwise limit policyholder payments.” |
| F | “Status assigned to insurers that are publicly placed via court order into liquidation after a finding of insolvency (or the international equivalent).” |
| S | “Status assigned to rated insurance companies to suspend the outstanding Financial Strength Rating (FSR) when sudden and significant events impact operations, and rating implications cannot be evaluated due to a lack of timely or adequate information. Or, in cases where continued maintenance of the previously published rating opinion is in violation of evolving regulatory requirements.” |
| NR | “Status assigned to insurance companies that are not rated. May include previously rated insurance companies or insurance companies that have never been rated by AM Best.” |
Find an A-rated life insurance company
Other third-party ratings agencies
AM Best is the only agency in the US that focuses on the insurance industry. There are three other major agencies, all of which rate a range of public and private financial institutions:
Each agency has its own grading scale to weigh financial strength.
Bottom line
When you buy life insurance, you’re essentially buying a guarantee that your insurer will pay your beneficiaries when you die. That’s where AM Best ratings come in. They indicate an insurer’s ability to meet its financial obligations, so you’ll want to factor in the AM Best rating when choosing a provider.
To find one, compare life insurance providers.
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