A.M. Best Rating Scale
A.M. Best is a global credit scoring system that was created in 1899 with the goal of rating insurance companies based on their financial health. A.M Best provides credit ratings on a graded scale of A++ to D for insurance companies based on how well they meet their financial obligations to consumers, including how stable they are and how they are managed.
Why Financial Health Is Important
When you buy life insurance, you want to know your family is protected for decades to come in the event you pass away early. Term life insurance generally lasts 10 to 30 years while permanent life insurance can last the rest of your life. Because life insurance may not pay out a death benefit for several decades after you purchase the policy, understanding the company’s financial health is an important factor when selecting an insurer. You will want to make sure they can pay out life insurance death benefits. A letter grade of A++ shows a superior financial rating and a D indicates a poor financial rating.
How A.M. Best Rates Companies
A.M. Best compiles and analyzes data, financial statements and reviews to determine its credit ratings for each insurance company. A committee oversees the rigorous process, which includes reviewing public documents, proprietary data and quarterly financial statements. A.M. Best reviews the following data:
- Business profile: The insurance company’s market position, management and product distribution channels.
- Operating performance: The insurer’s stability, diversity and sustainability of its earnings sources and relationship between earnings and liabilities.
- Balance sheet: The amount of liquidity (cash) the insurance company has on hand and how efficiently it generates earnings.
Insurance companies graded with the highest rating are considered financially reliable with positive cash flows. They generally have strong branding, excellent customer experience and diverse revenue streams.
A.M. Best Credit Ratings and Definitions
Each grade from A to C includes notches — minus or second plus sign — which indicates a variation of financial strength within that grade level. The following are A.M. Best rating scale categories and the definitions:
- A++ to A+ (Superior) grade: Superior ability to meet their financial obligations
- A to A- (Excellent) grade: Excellent ability to meet ongoing consumer obligations
- B++ to B+ (Good) grade: Good ability to meet their ongoing obligations
- B to B- (Fair) grade: Fair ability to meet their obligations but vulnerable to economic conditions
- C++ to C+ (Marginal) grade: Marginal ability to meet their obligations and vulnerable to economic conditions and adverse changes in underwriting
- C to C- (Weak) grade: Weak ability to meet their ongoing obligations
- D (Poor) grade: Poor ability to meet their financial obligations