What Do AM Best Insurance Ratings Mean? (2024)

Rating symbols are the scores used to represent each rating category. They include pluses and minuses, which Best calls “rating notches,” to indicate minor variations in financial strength within each category. For example, say AM Best rates two different insurers as “Superior.” That means the agency believes both have a superior ability to meet their financial obligations, but one insurer may receive an A+, while the other may be deemed slightly more impressive and earn an A++.

What Do AM Best Ratings Mean to Insurance Companies?

Insurance companies take the rating information issued by AM Best very seriously because they know current and potential clients and investors use these ratings to assess a company’s financial strength. Financially stable companies with positive outlooks engender confidence in not only policyholders and investors, but also shareholders and employees—all of whom are integral to an insurer’s growth, profitability, and long-term stability.

AM Best ratings are generally updated annually, as well as when significant developments might affect those ratings. Ratings can change based on an organization’s:

• Financial health, including underwriting, credit, market risks, and more.
• Comparison to peers, proprietary benchmarks, and industry standards.
• Operating plans, risk appetite, support of a parent and/or affiliates, management, and more.

Criticism of AM Best Ratings

Despite its generally good track record, AM Best, along with other rating agencies (such as Fitch, Moody’s, and Standard & Poor’s), came under heavy criticism for overly positive assessments of the insurance holding company American International Group (AIG) during the financial crisis in 2008. The survival of dozens of insurance companies owned by AIG was threatened by huge losses at AIG Financial Products, the company’s derivative trading subsidiary. AM Best and other rating agencies were caught by surprise and criticized for not realizing sooner how risky AIG’s trading operations were. In response, AM Best downgraded the company’s financial strength rating from A++ to A+. The federal government bailed out AIG for $182 billion, which was repaid by the end of February 2013.

Insurance News Publications

AM Best publishes several insurance news products, including Best's Insurance News & Analysis, which provides worldwide insurance news. It includes BestDay, an online news digest, and Bestweek, a weekly insurance industry newsletter. There’s also BestWeek Live (weekly online video program), Best's Review (monthly magazine), AMBestTV (free streaming video service), AM Best Webinars (events from industry leaders), and AMBestAudio (podcast service).

AM Best Analytical Products

In addition to rating services and insurance news publications, AM Best also offers a comprehensive collection of analytical products to its members for an in-depth look at the insurance industry:

• Best’s Insurance Reports: In-depth analytical reports on thousands of insurance companies, reinsurers, and other groups throughout the United States, Canada, and worldwide.
• Best’s Credit Reports: Credit reports for individual insurers that contain financial analysis, in-depth commentary, and more. Best’s Credit Reports can be purchased individually or as part of a collection.
• Best’s Library Center: A useful online resource for researching insurance information, the AM Best Library Center is available to public and academic libraries.
• Best’s Capital Adequacy Ratio Model—P/C, US: A desktop application that gives you access to the same model AM Best uses to calculate Capital Adequacy Ratio scores for single and group insurance companies in the property/casualty sectors in the United States.
• Best’s Capital Adequacy Ratio Model—Universal: An Excel-based tool that gives you access to the same model used by AM Best to calculate the Capital Adequacy Ratio scores for single and group insurance companies in the life and non-lifesectors in areas outside of the U.S. and Canada.

The Bottom Line

AM Best is a long-standing independent insurance rating agency. Although it has made mistakes in the past, its rigorous analysis of an insurer’s financial strength can help prospective customers and investors make informed decisions about which insurer to choose. Consumers and policyholders can generally be confident in AM Best’s assessment of an insurance company’s financial health.

That said, AM Best is one of five independent agencies that rate an insurance company’s financial strength—along with Moody’s, Fitch, Kroll Bond Rating Agency (KBRA), and Standard & Poor’s. These rating agencies don’t always agree in their assessments of a particular insurer, so in addition to comparing insurance coverage, it’s essential to consider ratings from at least two agencies before making your final decision about which insurance to buy. That way, you can find the best company for your insurance needs.