A.M. Best company is not a life insurer, but rather an agency who rates them. Four major rating agencies exist today who are responsible for giving their opinion, and ultimately rating, based on a long list of factors about a financial institution’s possibility of success or failure. One of those is A.M. Best, who is probably one of the most respected and rusted. The other three are Fitch, Moody’s, and Standard & Poor’s. While there are others, those are who are most often used. This article with the focus on just A.M. Best.
A COMPANY PROFILE OF A.M. BEST COMPANY
A.M. Best is a company founded more than a century ago, who monitors the credit ratings of financial institutions worldwide, and they have a special focus on the industries of insurance. From the consumer standpoint, it would be nearly impossible to evaluate all the different life insurance companies within the U.S. who are bidding for
your business, so a company like A.M. Best helps to take the burden by giving ratings which have a correlation to financial strength, solvency, capital reserves, and the risk of investment portfolios. It gives each company who participates a letter grade which corresponds to a chart outlining what type of risk the insurance company is overall.
A.M BEST RATINGS SCHEDULE
Here is the chart A.M. Best uses today when classifying a life insurance carriers grade:
Although somewhat similar to the ratings you may be accustomed to in the education environment, given by alphabetical letters “A” through “F”, only the “B+” or better ratings are considered good to Superior. When making your own decision about which insurance carrier you find most appropriate, having this chart on hand, in addition to the Secure Vulnerable
A++, A+ (Superior) B, B- (Fair)
A, A- (Excellent) C++, C+ (Marginal)
B++, B+ (Good) C, C- (Weak)
E (Under Regulatory Supervision)
F (In Liquidation)
ones provided by other credit agencies will help you compare each one in a fair manner.
WHAT EACH RATING REALLY MEANS
To help you further understand exactly what A.M. Best means when they offer a rating, let’s look deeper into their explanation of what they represent:
• Superior: reserved strictly for companies who are identified as having a superior ability to stay solvent on any long-term obligations
• Excellent: reserved strictly for companies who are identified as having an excellent ability to stay solvent on any long-term obligations
• Good: reserved strictly for companies who are identified as having only a good ability to stay solvent on any long-term obligations
• Fair: reserved strictly for companies who are identified as having only a fair ability to stay solvent on any long-term obligations, where economic or even underwriting fluctuations could prove mildly dangerous to solvency
• Marginal: reserved strictly for companies who are identified as having only no more than a marginal ability to stay solvent on any long-term obligations, where economic or even underwriting fluctuations could prove dangerous to solvency
• Weak: reserved strictly for companies who are identified as having only a weak ability to stay solvent on any long-term obligations, where economic or even underwriting fluctuations could prove very dangerous to solvency
• Poor: reserved strictly for companies who are identified as having only a poor or slight ability to stay solvent on any long-term obligations, where economic or even underwriting fluctuations could prove extremely dangerous to solvency In addition to these ratings, they also have what is called Opinion Outlooks, which are appended to the rating to exemplify the A.M. Best’s potential future outlook on the company. There are three:
Obviously, those speak for themselves.
HOW RATINGS ARE DETERMINED
According to A.M. Best, they use a complete analysis involving everything from a company’s basic balance sheet and factual data, to incorporating things like how the company does business, conforms to regulation, and even its management team to have the most thorough report possible. While they can’t make predictions about the future success of any company, when compared, statistically, to several industry indicators, their ratings correlate highly with results in the very near future. Outside of life insurance, they are also responsible for health insurance, insurance back securities, property and casualty insurance, reinsurance, title and mortgage guaranty, and more.
Insurance companies who have more than one insurance arm will have separate ratings for each, as A.M. Best takes careful consideration to view each entity independently. Aside from reviewing individual carriers and their financial strength, the company also gives it insight to entire industries as a whole in relation to the current economy, market
outlook, and regulation. Each of these can increase the volatility of an industry, so understanding the entire environment for which a company is involved in can also help someone to understand how well one insurance company is fairing against its competition. Reviews from A.M. Best can be done as much as annually, although a
company is not required to be re-rated so often. If, however, a company chooses to do so, A.M. Best may simply affirm the current rating if it believes the carrier is continuing its path and no key indicators point to a possibility of increased volatility in the future. If there is such a possibility, insurers can be downgraded, and also be issued a negative future outlook, which means turbulent times could still be ahead. Operations are the United States, but also Canada, Latin America, Asia, Europe, and Africa. Be aware companies who operate outside the United States may have separate ratings for their non-U.S. divisions, so it may be something to consider if you plan on doing business