How Do AM Best Ratings Work (for Auto Insurance)?
Last Updated on April 25, 2021
It’s important to assess the financial stability of your insurance company. Today, many policyholders check A.M. Best ratings before choosing an insurance provider.
How do A.M. Best ratings work for car insurance? What does A.M. Best do? What is an A.M. Best Financial Strength Rating (FSR)?
A.M. Best is a credit rating organization. The organization analyzes companies – including car insurance companies. Then, A.M. Best assigns scores based on that analysis.
Companies with a stronger financial position will have a higher A.M. Best score, while companies with a weak or unstable financial position will have a lower score.
The financial strength of your insurance company matters. Insurance companies with a strong financial rating should be able to pay claims without issue. Companies with a weak rating might have trouble paying claims and could declare bankruptcy.
Today, we’re explaining everything you need to know about A.M. Best and how they work for car insurance.
Types of A.M. Best Credit Ratings
A.M. Best assigns four types of credit ratings. According to A.M. Best, all ratings “are independent opinions based on a comprehensive quantitative and qualitative evaluation of a company’s balance sheet strength, operating performance, business profile and, where appropriate, the specific nature and details of a rated debt security.”
The four types of A.M. Best credit ratings include:
Best’s Financial Strength Rating (FSR): This rating analyzes an insurer’s financial strength and its ability to meet ongoing insurance policy and contract obligations. When we analyze the financial strength of an insurance company, we check the A.M. Best FSR first.
Best’s Issuer Credit Rating (ICR): This rating analyzes an organization’s ability to meet ongoing financial obligations. There’s a short-term and long-term ICR.
Best’s Issue Ratings (IR): This rating provides an independent opinion of credit quality assigned to issues that gauge the ability to meet the terms of the obligation. Like ICR, IR can be assigned on a short-term or long-term basis.
Best’s National Scale Rating (NSR): This rating is a relative measure of creditworthiness in a specific, local jurisdiction issued on a long-term basis.
For car insurance companies, the most important metric is the Financial Strength Rating (FSR). However, some insurance companies are large and have multiple business divisions, in which case ICR, IR, and NSR may all play a role.
How Do A.M. Best Credit Ratings Work?
Companies order an A.M. Best credit rating. They pay A.M. Best to perform the rating.
The rating process typically takes 11 to 14 weeks, depending on the time of year and the size of the organization.
It’s a six-step process:
- Step 1) Rating engagement and contract
- Step 2) Compiling information
- Step 3) Rating management meeting
- Step 4) A.M. Best’s analysis and decision
- Step 5) Rating communication and dissemination
- Step 6) Ongoing monitoring
There’s no minimum company size for a company to be considered for an A.M. Best rating.
Once the process is complete, A.M. Best assigns an initial Financial Strength Rating (FSR) to the company. A company may accept, decline, or appeal an initial rating.
After the company has accepted the initial rating, a review of the rating becomes part of an annual process. The only option is to withdraw the rating if the company no longer wishes to participate.
If the company accepts the rating, then A.M. Best issues a press release announcing the rating. That press release is shared across the internet. You can also view all A.M. Best ratings at www.ambest.com/home/ratings.aspx.
What Information Does A.M. Best Analyze?
A.M. Best will use public information and internet research when applicable. The company will also collect any documents a company has compiled for regulators and auditors. A.M. Best will check back-year financial statements and all other relevant financial data.
The ultimate goal of the process is to perform a complete qualitative and quantitative analysis of the company.
A.M. Best Financial Strength Rating (FSR) Scale for Insurance Companies
After performing a complete analysis of the company, A.M. Best assigns a rating. A.M. Best uses a grading system, with D being the worst and A++ being the best. There are also four non-rating designations, including E, F, S, and NR.
A.M. Best Grade Scale
Superior (A++): Assigned to insurance companies that have “a superior ability to meet their ongoing insurance obligations”, according to A.M. Best’s analysis.
Superior (A+): Assigned to insurance companies that have “a superior ability to meet their ongoing insurance obligations”.
Excellent (A): Assigned to insurance companies that have “an excellent ability to meet their ongoing insurance obligations”.
Excellent (A-): Assigned to insurance companies that have “an excellent ability to meet their ongoing insurance obligations”.
Good (B++): Assigned to insurance companies that have “a good ability to meet their ongoing insurance obligations”.
Good (B+): Assigned to insurance companies that have “a good ability to meet their ongoing insurance obligations”.
Fair (B): Assigned to insurance companies that have “a fair ability to meet their ongoing insurance obligations”, although “financial strength is vulnerable to adverse changes in underwriting and economic conditions”.
Fair (B-): Assigned to insurance companies that have “a fair ability to meet their ongoing insurance obligations”, although “financial strength is vulnerable to adverse changes in underwriting and economic conditions”.
Marginal (C++): Assigned to insurance companies that have “a marginal ability to meet their ongoing insurance obligations”, although “financial strength is vulnerable to adverse changes in underwriting and economic conditions”.
Marginal (C+): Assigned to insurance companies that have “a marginal ability to meet their ongoing insurance obligations”, although “financial strength is vulnerable to adverse changes in underwriting and economic conditions”.
Weak (C): Assigned to insurance companies that have “a weak ability to meet their ongoing insurance obligations”, and “financial strength is very vulnerable to adverse changes in underwriting and economic conditions”.
Weak (C-): Assigned to insurance companies that have “a weak ability to meet their ongoing insurance obligations”, and “financial strength is very vulnerable to adverse changes in underwriting and economic conditions”.
Poor (D): Assigned to insurance companies that have “a poor ability to meet their ongoing insurance obligations”, and “financial strength is extremely vulnerable to adverse changes in underwriting and economic conditions”.
A.M. Best Non-Rating Designations
A.M. Best also assigns four non-rating designations to various insurance companies:
E: This grade is given to insurers that “are publicly placed, via court order into conservation or rehabilitation, or the international equivalent, or in the absence of a court order, clear regulatory action has been taken to delay or otherwise limit policyholder payments”. In other words, the insurer has taken steps to avoid paying policyholder claims or is nearing bankruptcy.
F: This status is given to insurers that “are publicly placed via court order into liquidation after a finding of insolvency, or the international equivalent”. In other words, the insurer is bankrupt.
S: This status is assigned to rated insurance companies to suspend the outstanding financial strength rating (FSR) “when sudden and significant events impact operations and rating implications cannot be evaluated due to a lack of timely or adequate information; or in cases where continued maintenance of the previously published rating opinion is in violation of evolving regulatory requirements”.
NR: This status is assigned to insurance companies that are not rated. An insurance company may have been previously rated by A.M. Best and is no longer rated; or, the insurer may have never been rated by A.M. Best.
A.M. Best Ratings by Car Insurance Company
Now that you understand how these ratings work, let’s take a look at the most recent A.M. Best ratings for the top car insurance companies in the United States.
| Insurer | AM Best Rating |
|---|---|
| Allstate | A+ |
| American Family | A |
| Amica Mutual | A+ |
| Auto Club of Southern California | A+ |
| Automobile Club Group (AAA) | A++ |
| Country Financial | A+ |
| CSAA Insurance | A |
| Erie Insurance | A+ |
| Esurance | A+ |
| Farmers | A |
| GEICO | A++ |
| Liberty Mutual | A |
| MAPFRE | A |
| Mercury | A |
| MetLife | A+ |
| Nationwide | A+ |
| NJM Insurance | A+ |
| Progressive | A+ |
| Safeco | A |
| Safeway | A |
| State Farm | A++ |
| The Hartford | A+ |
| Travelers | A++ |
| USAA | A++ |
Final Word on AM Best Auto Insurance Ratings
Financial Strength Rating (FSR) matters for insurance companies. Good insurance companies have strong FSRs and a good ability to cover all policies. Poor insurance companies have weak FSRs and a poor ability to cover outstanding policies.
You don’t want your insurer to go bankrupt before you can make a claim. Check your insurer’s A.M. Best rating before buying a policy.
