Life insurance is a critical purchase, and you can’t be too careful as you seek to select the right company to protect your loved ones.
One of the most valuable tools when you’re researching life insurance carriers is credit ratings from companies like A.M. Best.
A.M. Best is not a life insurer, but rather one of the agencies that rates them.
What exactly is a credit rating agency, and why does it matter when it comes to life insurance?
Below, learn exactly who A.M. Best is and why you should look to their ratings to assess carriers.
What Is A.M. Best?
A.M. Best is one of four major credit rating agencies responsible for giving their opinion, and ultimately a rating, based on a financial institution’s likelihood of success or failure.
These ratings are crucial for investors, but also for life insurance policyholders, who use the scores to determine the odds that a life insurance provider has the track record and means to pay out a policy as agreed upon.
A.M. Best is undoubtedly one of the most respected and trusted agencies.
While there are others, these four are most often used and accepted industry-wide.
A Company Profile of A.M. Best Company
A.M. Best was founded more than a century ago to monitor the credit ratings of financial institutions worldwide, with a special focus on the insurance industry.
What began as a one-room operation in New York City in 1899 is now a global giant, working in more than 100 countries and relied upon by businesses and individuals worldwide.
A.M. Best became the premier source of insurance insight following the devastation of the earthquakes that crippled San Francisco residents and their families in 1906.
From its special reports documenting carriers’ creditworthiness then, to today, A.M. Best has been an invaluable resource for mindful insurance shoppers.
A.M. Best is verified as a Nationally Recognized Statistical Rating Organization (NRSRO) by the Securities & Exchange Commission, lending further credence to its validity and usefulness industry-wide.
From the consumer standpoint, it would be nearly impossible to evaluate all the different life insurance companies within the U.S bidding for your business.
A.M. Best helps to relieve the burden by giving ratings that correlate 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 poses overall.
Along with these ratings, A.M. Best provides users with commentary explaining its opinions and the company under review’s financial standing.
A.M Best’s operations are primarily in the United States, but they also have offices in Canada, Latin America, Asia, Europe, and Africa.
Be aware companies that operate outside the United States may have separate ratings for their non-U.S. divisions, something to consider if you plan on doing business elsewhere.
A.M Best Ratings Schedule
A.M. Best releases a number of ratings, including financial strength and issuer credit ratings.
When you’re buying life insurance, A.M. Best’s financial strength ratings are the most valuable tool to use in your assessment.
Here is the chart A.M. Best uses today when classifying a life insurance carrier’s grade:
|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)|
Although somewhat similar to the ratings you’re accustomed to in the education environment, following the alphabet from “A” through “F”, with A.M. Best, only “B+” or better ratings fall into the “good” or better range.
Each agency uses fairly similar scales, with their own classifications assigned to rating classes.
When making your decision about which insurance carrier to choose, having this chart on hand, in addition to the ones provided by other credit agencies, will help you compare each company in a fair and informative 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 each designation represents:
- 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 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, Best also has what are called Opinion Outlooks, which are appended to the rating to exemplify the A.M. Best’s potential future outlook on the company.
These three designations are straightforward, as you can see below:
How A.M. Best Ratings Are Determined
According to A.M. Best, the agency uses a complete analysis involving everything from a company’s basic balance sheet and factual data, to factors like how the company does business, conforms to regulation, and manages its team to have the most thorough report possible.
When compared, statistically, to several industry indicators, their ratings correlate highly with the actual financial results companies yield in the very near future.
Outside of life insurance, A.M. Best is also responsible for health insurance, insurance-backed securities, property and casualty insurance, reinsurance, title and mortgage guaranty, and more.
Insurance companies with 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 insight into the entire industry as a whole in relation to the current economy, market outlook, and regulation.
Each of these elements can increase the volatility of an industry, so understanding the entire environment in which a company is involved can also help users to understand how well one insurance company is fairing against its competition.
How Often Are A.M. Best Reviews Reevaluated?
Reviews from A.M. Best can be conducted as often as annually, although a company is not required to be reviewed and potentially re-rated that often.
However, if 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.
A.M. Best is a phenomenal tool to take advantage of as you compare life insurance companies.
The agency is universally accepted as a trustworthy and accurate assessor of insurance companies.
With a thorough and methodical approach, they do the heavy lifting and provide you with the pertinent details about a company’s financial status that might be difficult for some consumers to interpret, let alone find online.
Armed with their ratings and detailed analysis, you can make an informed life insurance purchase and be able to rest easy knowing your policy is in dependable hands.
How to Contact A.M. Best Company
For more information or questions regarding how A.M. Best conducts its evaluations:
A.M. Best Worldwide Headquarters
Oldwick, New Jersey 08858