Best Life Insurance: Am Best Rankings Explained

AM Best is a rating agency that assesses the financial strength and claims-paying ability of insurance companies. It is the only rating agency that focuses solely on the insurance industry and has over 120 years of experience in assessing company finances and operations. AM Best's ratings provide valuable insights for those seeking life insurance policies, helping them make informed decisions about their choices. The agency's ratings include a letter grade and future outlook projection, with insurers assessed as having either positive, negative, or stable outlooks.

AM Best's rating scale

AM Best is a credit rating agency that has been reviewing insurance companies since 1899. It is the oldest and largest credit agency in the world and is recognised by the U.S. Securities and Exchange Commission (SEC) as an official credit rating provider. AM Best's grades range from A+ to D and indicate an insurer's ability to pay out on claims and meet other financial obligations.

The AM Best rating scale includes six "Secure" ratings:

• A++ and A+ (Superior): These grades are assigned to companies with a superior ability to meet their ongoing obligations to policyholders.
• A and A- (Excellent): These grades are assigned to companies with an excellent ability to meet their ongoing obligations to policyholders.
• B++ and B+ (Very Good): These grades are assigned to companies with a good ability to meet their ongoing obligations to policyholders.

The rating scale also includes six "Vulnerable" ratings:

• B and B- (Fair): These companies have a fair ability to meet their current obligations but are financially vulnerable to adverse changes.
• C++ and C+ (Marginal): These companies have a marginal ability to meet their current obligations and are financially vulnerable to adverse changes.
• C and C- (Weak): These companies have a weak ability to meet their current obligations and are financially very vulnerable to adverse changes.
• D (Poor): These companies may not be able to meet their current obligations and are highly vulnerable to adverse changes.
• E (Under Regulatory Supervision): These companies have been placed under a form of supervision or control by an insurance regulatory authority and are no longer allowed to conduct normal insurance operations.
• F (In Liquidation): These companies have been placed under an order of liquidation by a court of law or have voluntarily agreed to liquidate.

In addition to these ratings, an Under Review modifier may be added if there is a potential for a near-term change to a company's score. This could imply either positive or negative results.

AM Best's ranking criteria

• Financial Strength Ratings (FSR): This assesses the financial strength and stability of insurance companies. It evaluates their ability to meet policyholder obligations and assesses their balance sheet strength, operating performance, and risk management practices.
• Issuer Credit Ratings (ICR): ICR focuses on the creditworthiness of insurance companies as issuers of debt and financial obligations. It evaluates their ability to honour financial commitments and assesses factors such as capital structure, financial leverage, and debt servicing capabilities.
• Issue Credit Ratings (IR): IR evaluates specific debt instruments, securities, or other financial obligations issued by insurance companies. It assesses the likelihood of timely repayment of principal and interest, considering factors such as seniority, collateral, and the company's overall creditworthiness.
• National Scale Ratings (NSR): NSR provides a relative assessment of credit risk within a specific country or region. It considers the unique economic, financial, and regulatory environment of that particular market, offering a more nuanced perspective on the creditworthiness of insurance companies operating within that geographic context.
• Insurance-Linked Securities & Structures Methodology (BILSM): BILSM focuses on rating insurance-linked securities and structures (ILS). It provides insights into information requirements, key rating considerations, risk modelling, and surveillance activities. This methodology ensures that AM Best can accurately assess and rate these complex financial instruments.

By utilising these comprehensive ranking criteria, AM Best helps the financial industry and consumers understand the financial strength, creditworthiness, and ability of insurance companies to meet their obligations worldwide.

AM Best's history

AM Best, the world's first credit rating agency, was founded in 1899 by Alfred M. Best in a 10-by-12-foot office on Liberty Street in New York, NY. The company's goal was to report on the financial stability of insurers and the insurance industry. In 1900, AM Best introduced Best's Insurance Reports - P/C, a compilation of credit reports on property/casualty insurers, along with a monthly supplement that became Best's Review.

Over the next few years, AM Best continued to develop innovative products and expand its offerings. In 1905, they developed the first insurance company credit ratings, and in 1906, they introduced Best's Insurance Reports – L/H. The San Francisco Earthquake and Conflagration in 1906 was a turning point for the company, as they published a special report on the losses and settlements, showcasing the value of objective financial stability assessments.

During World War I, Alfred M. Best played a significant role in drafting legislation related to German-owned insurers with assets in the U.S. and served as an expert witness in notable cases. The company's "Seal of Approval" became a sought-after mark of financial stability during the Great Depression, reflecting their expertise and influence in the industry.

Throughout the 20th century, AM Best launched numerous publications and expanded its global presence. The company introduced various insurance-related publications, including Best's Key Rating Guide, Best's Recommended Insurance Attorneys, and Best's Directory of Adjusters and Investigators. In 1941-1945, despite the challenges of World War II, AM Best continued to innovate and assess the impact of political and economic conditions worldwide.

Alfred M. Best passed away in 1958, leaving behind a legacy of innovation and leadership in the insurance industry. The company continued to thrive and expand, relocating to New Jersey and establishing regional offices worldwide. Today, AM Best is the largest credit rating agency specializing in the insurance industry, assessing the creditworthiness and reporting on over 16,000 insurance companies globally.

With its strong foundation and rich history, AM Best has become a trusted source of information and analysis for consumers and professionals in the insurance industry. The company's commitment to innovation and its global presence have solidified its position as a leading credit rating agency and news publisher in the insurance sector.

AM Best's competitors

AM Best is a credit ratings agency that provides news publishing and data analysis services for the insurance industry. It is the only rating agency that specializes solely in the insurance industry. However, AM Best has competitors that also offer ratings and insights for insurance companies. Here are some of its competitors:

• Moody's: Moody's is a well-known credit rating agency that operates in various sectors, including insurance. While they cover a broader range of industries, they are still considered a competitor to AM Best in the insurance ratings space.
• Fitch: Fitch is another prominent credit rating agency that provides ratings for debt instruments across multiple sectors, including insurance. Like Moody's, Fitch is a direct competitor to AM Best in the insurance ratings domain.
• Standard & Poor's: Standard & Poor's (S&P) is a leading credit rating agency that assesses and rates debt instruments in different sectors, including insurance. They are mentioned as an alternative rating company to AM Best when evaluating insurance companies.
• Comdex: Comdex offers a composite score that aggregates the evaluations of various life insurance companies and puts them on a single 1-100 point scale. This allows for a level playing field when comparing ratings from different agencies, including AM Best.

These competitors to AM Best provide independent assessments and ratings for insurance companies, giving consumers and policyholders additional perspectives and insights when making decisions about insurance providers.

AM Best's impact on the insurance industry

AM Best is the only rating agency that specializes solely in the insurance industry. With over 120 years of experience, it is one of the most trusted independent third-party rating agencies. AM Best's ratings provide valuable insights and help consumers understand which policies best meet their needs.

AM Best's ratings also influence insurers' operations and strategies. Insurers seek to maintain or improve their ratings, which leads to a more stable and reliable industry. The company's focus on claims-paying ability and credit quality encourages insurers to prioritize these aspects, resulting in a more secure environment for consumers.

Additionally, AM Best's ratings provide valuable data and insights for the insurance industry. The company's analysis and evaluations help insurers identify areas of improvement and make informed decisions about their business strategies. This, in turn, can lead to enhanced products and services for consumers.

Overall, AM Best plays a crucial role in the insurance industry by providing trusted and specialized ratings, influencing insurers' operations, offering valuable data and insights, and contributing to industry knowledge through its publications. The company's impact helps shape a more stable, reliable, and consumer-centric insurance industry.

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