You’ll often see insurance companies reference independent financial ratings they’ve received. Their purpose is to provide assurance to potential customers about the stability and security of a company.
Life insurance, after all, is one of the few products that you’ll purchase that proves itself far into the future, often after the insured has passed. A.M. Best rates insurance companies.
Founded in 1899, A.M. Best provides independent analysis on a business’s financial soundness. It does little good to invest in a whole life insurance policy, for example, if the company’s ability to pay future claims is uncertain. You can think of it as getting a report card on an insurer. A high rating means the company has a track record that means it is a safe risk for you to take.
How A.M. Best Rates Life Insurance Companies
A.M. Best is exclusively involved in the insurance sector. It bases its analysis on a variety of parameters to determine a rating. Its comprehensive assessment includes proprietary methods for gauging financial stability. It considers factors such as its balance sheet to operating performance to its company philosophy. It also reviews its place in the insurance sector.
The company analysis, its Best’s capital adequacy ratio (BCAR), looks primarily at an insurance company’s balance sheet which is the primary concern of the insured. The BCAR also considers the amount of risk an insurer takes, its reliance on reinsurance activities, along with its loss reserves. It is revamping its rating methodology for more transparent and consistency.
Registered users can search the company website for current ratings along with a history of financial strength and long-term credit ratings. You can also browse A.M. Best press releases about companies. Registration is free.
Other rating agencies, who work much the same as A.M. Best and who are usually also considered in the totality of a company profile, are:
A.M Best’s Credit Ratings
In addition to an overall rating, A.M. Best also provides both a short- and long-term credit rating on insurance companies. This information provides a valuable resource to assess a company’s ability to meet its financial obligations. Anyone insured by a particular company wants the peace of mind from knowing your investment in life insurance will pay off next year or decades later.
Here is the chart explaining what each rating is, according to their website:
|Rating Categories||Rating Symbols||Rating Notches||Category Definition|
|Superior||A+||A++||Assigned to insurance companies that have, in our opinion, a superior ability to meet their ongoing insurance obligations.|
|Excellent||A||A-||Assigned to insurance companies that have, in our opinion, an excellent, ability to meet their ongoing insurance obligations.|
|Good||B+||B++||Assigned to insurance companies that have, in our opinion, a good ability to meet their ongoing insurance obligations.|
|Fair||B||B-||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.|
|Marginal||C+||C++||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.|
|Weak||C||C-||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.|
|Poor||D||–||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.|
The Insurance Company Perspective
Insurance companies covet a high, secure rating because it can directly impact consumer confidence and, consequently, its ability to remain profitable. Responsiveness to changes in the market and stability are imperative for a good rating. A.M. Best also considers a company’s outlook which is of interest to both consumers and investors. A lot rides on its A.M. Best rating.
Guidance for Insurance Companies
A.M. Best isn’t just about rating insurance companies. It also functions in a mentor role with its comprehensive information services. It is a treasure trove of knowledge and news about the industry. It includes analytical, financial, and insurance data products. It provides weekly news with its subscription-based online BestWeek newsletter, a monthly magazine, and wire service.
Moving Into the International Scene
A.M. Best began as a US-based a company. It expanded its global presence opening international offices in 1997 in London and 2000 in Hong Kong. It has since opened offices in Dubai, Mexico City, and Singapore. Today, it rates about 3,400 companies in over 80 countries. The company has also moved into the mobile sphere with its 2015 Best’s Credit Rating mobile application.
The company is a testament to its value as a rating entity. In 2005, the U.S. Securities and Exchange Commission recognized it as a Nationally Recognized Statistical Rating Organization (NRSRO). It has received many honors including the International Best Ratings Agency at the 2015 International Takaful Awards and the Best Rating Agency at the Reactions Global Awards.
When choosing life insurance, comparing policies is only part of the process. It is one of the future purchases you’ll make that requires such a high investment in trust. A.M. Best provides you with the financial data you need to make a well-informed choice. With the security of your family at stake, it pays to be sure with a company with demonstrated financial soundness.