A.M. Best's Ratings
A. M. Best Co. is the oldest insurance rating agency in the world and has been reporting on the financial condition of insurance companies since 1899. It has been assigning an alphabetic rating scale to insurance companies since 1976. Best's evaluates a company's Relative Financial Strength and overall performance in comparison with others. Best's ratings should not be taken as a guaranty of any insurer's current or future ability to meet its contractual obligations. Best's charges an insurer $500 for a letter rating. (Contact A.M. Best Company, Oldwick, New Jersey 08858.)
A. M. Best's rating is assigned after evaluating a company's financial condition and operating performance both in qualitative and quantitative terms. Quantitative evaluation examines (1) profitability, (2) leverage, (3) liquidity, (4) reserve adequacy, and (5) reinsurance. Qualitative evaluation is based on (1) spread of risk, (2) soundness and appropriates of reinsurance, (3) quality and diversification of assets, (4) adequacy of policy reserves, and (5) adequacy of surplus, (6) capital structure, and (7) management experience. Ratings are reviewed both on an annual and a quarterly basis.
The rating scale uses letter grades ranging from A++ (Superior), the highest, to F (In Liquidation), the lowest. The letter grade can also have a modifier that qualifies it. The A++ highest rating is based on a company's favorable comparison of profitability, leverage, and liquidity with industry norms; favorable experience from mortality, lapses, and expenses; quality and diversification of investment portfolio; strong policy reserves and a surplus to risk ratio that is above that for the average life insurance company. Also examined are the amount and soundness of its reinsurance and the competence and experience of management.
The rating categories, including modifiers and "not assigned" designations, are as follows:
| Rating Categories | |
|---|---|
| A++, A+ | Superior |
| A, A- | Excellent |
| B++, B+ | Very Good |
| B, B- | Good |
| C++, C+ | Fair |
| D | Below Minimum Standards |
| E | Under State Supervision |
| F | In Liquidation |
| Rating Modifiers | |
|---|---|
| p | Pooled Rating |
| r | Reinsured Rating |
| e | Parent Rating |
| x | Revised Rating |
| w | Rating Watch List |
| g | Group Rating |
| s | Consolidated Rating |
| q | Qualified Rating |
| "Not Assigned" Categories | |
|---|---|
| NA-1 | Special Data Filing |
| NA-2 | Less than Minimum Size |
| NA-3 | Insufficient Operating Experience |
| NA-4 | Rating Procedure Inapplicable |
| NA-5 | Significant Change |
| NA-6 | Reinsured by Unrated Insurer |
| NA-8 | Incomplete Financial Information |
| NA-9 | Company Request |
| NA-11 | Rating Suspended |
| Financial Performance Rating (FPR) | |
|---|---|
| The FPR measures the financial strength of small (NA-2) or new (NA-3) companies not eligible for a Best's Rating and is based on the following numerical scale. | |
| Secure Ratings | |
| 9,8 | Strong |
| 7,6 | Above Average |
| 5 | Average |
| Vulnerable Ratings | |
| 4 | Average |
| 3,2 | Below Average |
| No Rating Opinion | |
| 1 | Not Assigned |
Ratings and reports on individual companies are available from A.M. Best. The cost of the report, which includes the company's rating, is $20.
You can also receive just the letter rating by dialing a 900 number. (This is a toll call at $2.50 per minute.) Call A.M. Best at (908) 439-2200 for instructions on how to place the call.
