A.M. Best is a rating agency that specializes in the insurance industry. They give letter grades to insurance companies, ranging from A++ to D-. Many people are wondering whether or not these ratings are still relevant in today’s market. In this blog post, we will discuss what A.M. Best ratings are, and whether or not they are still important for consumers and businesses alike!
How Does This Work?
When shopping for life insurance, you’ll frequently see companies or agencies refer to the A.M. Best rating of the insurer issuing the policy. The rating of the issuer of your policy can be just as important a factor as the amount of coverage you buy, the term length of a policy, and how much you’re paying. Suffice to say, you should pay close attention to what the rating is.
These third-party ratings agencies are evaluating life insurance carriers on the nuts and bolts of their financial strength. Using varying degrees of analytical rigor, ratings agencies evaluate how well-funded an insurance carrier is, how much risk it carries, and its operating performance. Each ratings agency has a different formula.
Ratings represent the opinion of the rating agency of the financial strength and ability to meet contractual obligations of the company being rated, based on the rating agency’s independent analysis. A rating is not a guarantee of financial strength, but it can be considered an indicator.
While there are several independent rating agencies out there, A.M. Best is one of the most touted and respected in the life insurance industry. A.M. Best. stands out among other rating agencies not only for its longevity but for its specialization: It is the only ratings agency that solely rates insurance.
Do The Ratings Matter?
Before we talk specifically about A.M. Best, it’s important to understand why you should care about life insurance company ratings. If you’re like me, you probably scour reviews before buying a big-ticket item and TripAdvisor reviews before making those summer vacation plans. Information is power and that is certainly true in the insurance world. You wouldn’t want to make an important financial decision such as purchasing life insurance to help protect your family without evaluating the company issuing the policy.
Life insurance companies receive ratings from independent agencies based on their assessments of the insurer’s financial strength and claims-paying ability. A life insurance policy is only as good as the paper it’s written on. You should choose a life insurance company that’s well respected and has received reputable ratings.
The higher the rating, the higher the rating agency’s assessment that the insurer will be around to pay out the policy to your beneficiaries. It serves as an independent, objective opinion based on their analysis of items such as customer complaints, available cash flow, and acceptable risk.
History of A.M. Best
A.M. Best has been in business for a very long time – since 1899. It was founded with a mission to report on the financial stability of insurers and the industry as a whole. It is, in fact, the oldest rating agency and one of the most widely recognized providers of ratings, financial data, and insurance industry news.
As we know, earthquakes are devastating for everyone affected, but the 1906 San Francisco earthquake and the fire caused by it put A.M. Best firmly on the map. A.M. Best, only seven years old at the time, was the go-to source for insurance-related news after the quake. In addition to firsthand reports on the fire insurance losses attributed to the earthquake and fire, A.M. Best issued its “Special Report Upon San Francisco Losses and Settlements“ in 1907, which detailed the insurance losses experienced as a result of the 1906 earthquake and ensuing fire.
This kind of expanded and reliable reporting and rating service was seen as invaluable in the wake of the San Francisco quake, which bankrupted 12 American insurance companies and two European insurers. The newly appreciated need for an indication of long-term financial stability led to A.M. Best’s impressive growth in the first part of the 20th century.
More than 100 years later, A.M. Best continues to enjoy a sterling reputation for its analysis of financial stability within the insurance industry.
Always do your research and make sure you ask your agent if the company has a rating!