What is A.M. Best?

A.M. Best is a credit rating agency that rates insurance companies for their ability to meet their financial commitments to customers.

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By

Andrew HurstSenior Editor & Licensed Auto Insurance ExpertAndrew Hurst is a senior editor at Policygenius who has spent his entire career writing about life, disability, home, auto, and health insurance. His work has been featured in The New York Times, The Wall Street Journal, the Washington Post, Forbes, USA Today, NPR, Mic, Insurance Business Magazine, and Property Casualty 360.

Edited by

Antonio Ruiz-CamachoAntonio Ruiz-CamachoAssociate Content DirectorAntonio is a former associate content director who helped lead our life insurance and annuities editorial team at Policygenius. Previously, he was a senior director of content at Bankrate and CreditCards.com, as well as a principal writer covering personal finance at CNET.

Updated|2 min read

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When you research life insurance companies at Policygenius, we provide three different ratings from third parties to help you evaluate companies: the A.M. Best rating, Better Business Bureau (BBB) rating, and JD Power rating.

A.M. Best is a global credit rating agency that focuses exclusively on the insurance industry; they score insurance companies based on financial strength, i.e., whether they can survive unstable economic situations. The A.M. Best rating scale ranges from A++ (Superior) to D (Poor).

Key takeaways

  • A.M. Best grades the long-term financial stability of insurance companies. 

  • Ratings reflect whether an insurer can reliably pay claims and other debts based on its cash on hand, market position, risk management, and other factors. 

  • A financially stable insurer offers peace of mind that the company can withstand stock market volatility and fulfill its promises to customers.

Life insurance terms you should know
  • Beneficiaries: The people you name on your life insurance policy to receive the lump sum of money — also known as the death benefit — when you die.

  • Cash value: The portion of a permanent life insurance policy’s monetary value that grows tax-deferred over the life of the policy.

  • Death benefit: The amount of money the life insurance company will pay your beneficiaries when you die.

  • Face amount: The dollar amount, or death benefit, your beneficiaries receive if you die while your life insurance policy is active.

  • Insured: The person who is covered by the insurance policy.

  • Policy: The legal document that includes the terms and conditions of your life insurance contract.

  • Policyholder: The person who owns an insurance policy. Usually, this is the same person as the insured.

  • Permanent life insurance: A type of life insurance that lasts for the rest of your life and usually includes a cash value account.

  • Premium: The amount you pay your insurance company to keep your coverage active. Premiums are typically paid monthly or annually.

  • Riders: Add-ons to a life insurance policy that provide more robust coverage, sometimes for an extra cost.

  • Term life insurance: A life insurance policy that lasts for a set number of years before it expires. If you die before the term is up, your beneficiaries receive a death benefit.

  • Underwriting: The process where an insurance company evaluates the risk of insuring you and determines your final rate.

Why does a life insurance company’s A.M. Best rating matter?

A.M. Best is a trustworthy source for gauging your provider’s financial strength. Life insurance is financial protection for your family for decades in the future. Once you’ve found a company that suits your needs, a financial rating offers assurance that the insurer can weather market downturns and fulfill its monetary obligations far into the future. 

Policygenius only offers policies from life insurance companies that have an A.M. Best rating of A- (Excellent) or better. However, even if your insurer goes bankrupt, there are regulations to ensure your policy is honored.

Learn more about how to choose the right life insurance company

How A.M. Best determines its ratings

A.M. Best assigns insurers a letter grade, with or without plus or minus signs, which the company calls notches. To set a company’s grade, A.M. Best compiles and analyzes public and proprietary financial information and data, including:

  • Balance sheet strength: A company’s cash on hand (liquidity), how efficiently the company generates earnings (quality of capital), quality and appropriateness of reinsurance programs, and more

  • Business profile: Including market position, management quality, and distribution channels for the company’s products

  • Enterprise risk management (ERM): Analysis of risk management framework and capability relative to the insurer’s risk profile

  • Operating performance: Stability, diversity, and sustainability of the company’s earnings sources, plus relationship between earnings and liability

Insurance companies that receive high ratings generally have strong and predictable cash flows; competitive advantages in branding and customer experience; and diverse earnings and revenue streams, among other factors.

A committee determines the final A.M. Best rating to ensure consistency and objectivity. A.M. Best regularly reviews and updates the ratings as new data becomes available. 

A.M. Best credit ratings & definitions

The table below summarizes how A.M. Best defines each of the grades on their ratings scale.

Each rating from A to C also includes notches — either a minus sign or a second plus sign — which reflect some variation in financial strength within that grade level. [1] For example, a “Good” company likely to meet their financial obligations that’s especially strong in the category might receive a B++ rather than a B+.

Rating category

Rating range

Category definition

Superior

A++ to A+

Superior ability to meet ongoing insurance obligations

Excellent

A to A-

Excellent ability to meet ongoing insurance obligations

Good

B++ to B+

Good ability to meet ongoing insurance obligations

Fair

B to B-

Fair ability to meet ongoing insurance obligations; vulnerable to adverse changes in underwriting and economic conditions

Marginal

C++ to C+

Marginal ability to meet ongoing insurance obligations; vulnerable to adverse changes in underwriting and economic conditions

Weak

C to C-

Weak ability to meet ongoing insurance obligations; very vulnerable to adverse changes in underwriting and economic conditions

Poor

D

Poor ability to meet ongoing insurance obligations; extremely vulnerable to adverse changes in underwriting and economic conditions

Collapse table

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A.M. Best’s insurance rating system is an easy and trustworthy way to evaluate your life insurance provider’s financial health. However, financial stability is just one part of choosing the right life insurance company. An independent insurance broker like Policygenius can help you choose a provider that suits all of your needs.

References

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Policygenius uses external sources, including government data, industry studies, and reputable news organizations to supplement proprietary marketplace data and internal expertise. Learn more about how we use and vet external sources as part of oureditorial standards.

  1. A.M. Best

    . "

    Guide to Best’s Financial Strength Ratings (FSR)

    ." Accessed June 06, 2024.

Author

Andrew Hurst is a senior editor at Policygenius who has spent his entire career writing about life, disability, home, auto, and health insurance. His work has been featured in The New York Times, The Wall Street Journal, the Washington Post, Forbes, USA Today, NPR, Mic, Insurance Business Magazine, and Property Casualty 360.

Editor

Antonio is a former associate content director who helped lead our life insurance and annuities editorial team at Policygenius. Previously, he was a senior director of content at Bankrate and CreditCards.com, as well as a principal writer covering personal finance at CNET.

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