What Is AM Best?
AM Best is a credit rating agency focused exclusively on the worldwide insurance industry. AM Best assigns credit ratings that assess an insurance company's creditworthiness, which refers to the likelihood the company will default on its obligations. Consumers, financial professionals, and investors all use AM Best's credit ratings to help them make informed decisions.
AM Best uses a ranking system to provide the marketplace with a quantified assessment of a company's financial health. The U.S. Securities and Exchange Commission (SEC) has designated the company a nationally recognized statistical rating organization.
Key Takeaways
- AM Best is a credit rating agency that specializes in assessing the creditworthiness of insurance companies.
- Alfred M. Best founded AM Best in 1899 in New York City and began its ratings scheme following the 1906 San Francisco earthquake.
- AM Best uses both qualitative and quantitative measures to assess an insurance company's ability to pay claims and meet its financial obligations.
- AM Best's financial strength ratings range from the highest A++ to B+, to 10 vulnerable ratings, ranging from B to S, with the lowest indicating a rating was suspended.
Understanding AM Best
Founded in New York City in 1899 by Alfred M. Best, the privately held company is headquartered in Oldwick, New Jersey. The company began rating insurance companies in 1899 and expanded to reporting on related news following the 1906 San Francisco earthquake. Damage from the earthquake, which devastated much of the city, resulted in insurance claims that bankrupted 12 American companies and two more in Europe. The need for reliable information and ratings on insurers led to the company's strong growth. AM Best expanded to offices in the following locations: London in 1997, Hong Kong in 2000, Dubai in 2012, Mexico City in 2014, Singapore in 2015, and Amsterdam in 2018.
AM Best is the only credit rating agency that specializes solely in the insurance industry. Moody's, Fitch, and rate a wide range of debt instruments from both the public and private sectors in addition to insurance. AM Best's rating system focuses on an insurer's claims-paying ability and the credit quality of its obligations.
Today, consumers will often refer to AM Best's credit ratings to check on the financial stability and reputation of an insurance company before purchasing an insurance product. Financial professionals and investors that are looking to invest in an insurance company through a stock or bond purchase will review the company's AM Best ratings as part of their research and due diligence.
AM Best does business in more than 100 countries and assesses the creditworthiness and reports on over 16,000 insurance companies from around the world.
AM Best Rating System
AM Best issues a Best's Credit Rating (BCR) that rates both financial strength and issuer credit. The former indicates Best's assessment of an insurer's ability to meet its obligations to policyholders. It takes into account both qualitative and quantitative assessments of the balance sheet, operating performance, and business profile. Best has six secure ratings, ranging from the highest A++ to B+, and 10 vulnerable ratings, ranging from B to S, with the lowest indicating a rating was suspended.
Best's short-term credit ratings reflect the company's ability to pay commitments due in less than a year, and they range from a high of AMB1+ to a low of D (in default). Long-term credit ratings reflect the company's ability to pay its commitments maturing in more than a year, and range from AAA (exceptional) to D (in default).
Criticism of AM Best
In Sept. 2008, the financial market crisis hit insurance holding company American International Group (AIG) hard, as enormous losses at its derivative trading subsidiary, AIG Financial Products, threatened to bring down the entire company, including the dozens of insurance companies that it owned. The holding company's stock fell dramatically, and rating agencies were forced to quickly and aggressively cut the company's rating. The federal government took over and bailed out the company with $182 billion of financial support, which was repaid in full by the end of February 2013.
The rating agencies, including AM Best, were sharply criticized for not recognizing sooner the risk that AIG's aggressive trading operations created. Best cut AIG's financial strength rating to A+ (superior) from A++ (superior) and issuer credit ratings to "aa" from "aa+" as the company faced collapse.
FAQs
AM Best's rating system focuses on an insurer's claims-paying ability and the credit quality of its obligations. Today, consumers will often refer to AM Best's credit ratings to check on the financial stability and reputation of an insurance company before purchasing an insurance product.
How does AM Best rating work? ›
A rating by A.M. Best is based on a comprehensive evaluation of an insurance company's financial strength, operating performance and business profile. A.M. Best also regularly publishes Impairment Studies, which evaluate rating performance over time.
What is the rating scale for insurance companies? ›
The most well-known insurance specific rating company, the scores provided by AM Best are often considered the yardstick for financial strength in the industry. The highest rating offered is A++ (Superior) while the lowest is a D (Poor).
How do I check the rating of an insurance company? ›
How to check an insurer's financial strength
- A.M. Best Company.
- Demotech.
- Fitch Ratings.
- Moody's Investor Service.
- Standard and Poor's Corporation.
The ratings for State Farm Insurance
| Organization | State Farm Rating |
|---|
| A.M. Best1 A.M. Best1 | State Farm Rating A++ |
| S&P GLobal Rating2 S&P GLobal Rating2 | State Farm Rating AA |
The rating scale uses letter grades ranging from A++ (Superior), the highest, to F (In Liquidation), the lowest.
What does an AM Best rating of B+ mean? ›
B++, B+ Good Assigned to companies that have, in our opinion, a good ability to meet their ongoing insurance obligations. B, B- Fair Assigned to companies that have, in our opinion, a fair ability to meet their ongoing insurance obliga- tions.
How are insurance scores calculated? ›
Insurance scores use an applicant's credit score and credit history to help calculate the odds that the prospective insured will file a claim under their policy. While your insurance score isn't the only factor used to determine your rates, most insurance companies use it to estimate your potential losses.
What is the general AM Best rating? ›
Yes, The General is a real insurance company. It offers auto insurance policies, is accredited by the Better Business Bureau and has an A financial strength rating from AM Best.
What are the three methods of insurance rating? ›
Rates may be established by one of three methods: manual rating, which results in standard rates for large groups of similar risks; judgment rating, which relies on the skill and experience of the rate maker; and merit rating, in which a standard or manual rate is adjusted based on an evaluation of the risk.
How Often Does AM Best Review an Insurance Company's Financial Strength? AM Best reviews each insurance company's financial strength rating annually. However, each company must complete a variety of checkpoints along the way to make sure that the current rating is in line with their future projections.
How do insurance companies get their ratings? ›
There are four main rating agencies: A.M. Best, Standard & Poor's, Moody's and Fitch. Each of these rating agencies use their own proprietary scale to rate an insurance company. Their rating refers only to the financial strength of the insurance company and is not a recommendation of a particular annuity product.
What are the top 5 insurance rating agencies? ›
Five independent agencies—A.M. Best, Fitch, Kroll Bond Rating Agency (KBRA), Moody's and Standard & Poor's—rate the financial strength of insurance companies. Each has its own rating scale, its own rating standards, its own population of rated companies, and its own distribution of companies across its scale.
What determines AM Best rating? ›
The opinion represents a comprehensive analysis consisting of a quantitative and qualitative evaluation of balance sheet strength, operating performance, and business profile or, where appropriate, the specific nature and details of a security. Please read the Guide to Best's Credit Ratings for an in-depth explanation.
Did State Farm get downgraded by AM Best? ›
AM Best has downgraded its Financial Strength Rating (FSR) and Long-Term Issuer Credit Rating (Long-Term ICR) for State Farm General Insurance Company.
What is the AM Best rating for AAA? ›
AAA Life Insurance Company
| Rating (Rating Category): Affiliation Code: | A (Excellent) g (Group) |
|---|
| Outlook (or Implication): | Stable |
| Action: | Affirmed |
| Effective Date: | September 12, 2023 |
| Initial Rating Date: | June 30, 1979 |
A.M. Best grades insurance companies on financial health by assigning them letter grades ranging from A+ to D. These grades can also include a notch to further distinguish financial strength within a grade. An A+ company with superior financial strength, for example, would be graded as A++.
What is Mercury's AM Best rating? ›
//BestWire// - AM Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICRs) of “a” (Excellent) for the members of Mercury Casualty Group (Mercury).
What is the difference between Demotech and AM Best rating? ›
In comparison to A.M. Best, Demotech claims a better track record and long-term solvency with insurers.
What is the S&P equivalent of AM Best? ›
For example, A.M. Best's highest insurance company credit rating is A++, meaning superior, while Fitch's is AAA for exceptionally strong, Moody's is Aaa for the highest quality, and Standard & Poor's is AAA for extremely strong.
