AM Best Rating Scale

AM Best Scale is an independent rating agency that grades an insurer’s financial strength and creditworthiness based on how well they meet their business obligations. The long-standing global credit scoring system has been in business since 1899 and is designed to rate insurer’s based on their financial health. Its rigorous analysis of an insurance company’s in-depth financial worth is computed into a graded scale of A++ to D. It gives policyholders a comprehensive way to verify the creditworthiness of an insurance company. 

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What Is AM Best Rating Scale?

The rating an insurer receives is based on how well the company meets their obligations to consumers, including how stable they are and how well they are managed. It is essentially an insurance company’s report card. Your life insurance coverage may not pay out a death benefit for decades after you purchase the policy, so it’s important to factor in the insurer’s financial health and have the peace of mind that it can meet your expectations. A letter grade of A++ indicates a superior financial rating while a D shows a poor financial rating. The AM Best Scale rates insurers in areas like: 

• Captive insurance
• Health insurance
• Insurance-linked securities
• Life/annuity insurance
• Property/casualty insurance (including home and car)
• Reinsurance
• Title and mortgage guaranty

How AM Best Insurance Ratings Work

The credit rating agency concentrates solely on the insurance industry. When it rates — or grades — an insurer, it evaluates and analyzes the insurance company’s balance sheet strength, operating performance, business profile and how it measures up to its competitors. AM Best researches and analyzes proprietary data and company financial statements to determine its credit ratings for each insurer:

• Balance sheet: Information about the amount of cash the insurance company has on hand and how well it generates and manages earnings. 
• Operating performance: The company’s stability and sustainability of its earnings sources and relationship between earnings and liabilities.
• Business profile: The insurer’s market position, financial strength, management team and product distribution channels.

The ratings are a good indicator of how well the company might weather economic storms and other financial challenges. 

AM Best Insurance Ratings and Definitions

Each letter grade from A to C, which includes rating symbols to indicate a minus or plus sign, sums up AM Best’s opinion of the insurance company’s financial strength and ability to fulfil its insurance obligations to policyholders. The minus and plus symbols are called “rating notches” and measure minor variations in financial strength. The following are AM Best's rating scale categories and the definitions: 

• Superior: A++ to A+ grade assigned to insurance companies that have superior ability to meet their financial obligations, such as paying out claims
• Excellent: A- to A grade given to insurers that have an excellent ability to meet ongoing consumer obligations
• Good: B++ to B+ grade assigned to insurance companies that have a good likelihood that they will meet their ongoing obligations
• Fair: B- to B grade that AM Best gives to companies that have a fair ability to meet their financial obligations, however, could be vulnerable to stormy economic conditions
• Marginal: C++ to C+ grade given to insurance companies that have marginal ability to meet their financial obligations and likely to experience vulnerability due to weak economic conditions
• Weak and poor: C, C- and D grades given to insurance companies that don’t have a strong likelihood of meeting their financial obligations and are extremely vulnerable to adverse changes in underwriting

Ratings are issued on more than 3,500 insurance companies in 80 countries around the world.