AM Best: How the Ratings for Insurance Companies Work

AM Best, AM Best Ratings

Insurance is one of those things you don’t think about until you really need it. But when that time comes, you want to be sure your insurance company can actually back you up. That’s where AM Best comes in—a name you may have come across but never really stopped to understand.

So, what are AM Best ratings? Why should you care? And how does the AM Best rating scale actually work? Let’s break it all down, in a way that actually makes sense.

What Are AM Best Ratings and Why Do They Matter?

Imagine you’re shopping for a new car. You wouldn’t just pick one based on how cool it looks, right? You’d check reviews, reliability scores, and safety ratings. Well, insurance companies work the same way. You need to know if they’re financially stable before you hand over your hard-earned money.

AM Best is essentially the gold standard when it comes to evaluating insurance companies. Their ratings give consumers, businesses, and even investors a snapshot of how financially secure an insurance provider really is. A high rating? That means they have a strong financial backbone. A lower rating? Well… you might want to rethink things.

Why Should You Trust AM Best Ratings?

  • They specialize in insurance. Unlike other rating agencies that cover multiple industries, AM Best only focuses on insurance, making their evaluations incredibly thorough.
  • Longevity and reputation. They’ve been around since 1899, meaning they’ve seen companies rise, fall, and everything in between.
  • Regulatory recognition. Many state insurance departments and financial analysts rely on AM Best ratings as an industry benchmark.
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If you’re considering an insurance company, checking their AM Best rating is non-negotiable—it’s your best insight into whether they’ll actually be there when you need them.

How the AM Best Rating Scale Works

Now, let’s get into the real meat of it. The AM Best rating scale is essentially a grading system that measures an insurer’s ability to meet its financial obligations. This scale is divided into several categories:

1. Financial Strength Ratings (FSR) – Can They Pay Claims?

The Financial Strength Rating (FSR) is what most consumers care about. It tells you whether an insurance company can actually pay out claims when the time comes.

  • Superior (A+, A++) – The best of the best. These companies are financially rock-solid and extremely reliable.
  • Excellent (A, A-) – Very strong, but maybe not quite in the “untouchable” category.
  • Good (B+, B++) – Still financially stable, but with some room for concern.
  • Fair (B, B-) – Stability is a bit shaky; potential risks exist.
  • Marginal (C+, C++) – Not the safest bet. You might want to look elsewhere.
  • Weak (C, C-) – High risk. Possible financial trouble ahead.
  • Poor (D) – Major financial struggles. Claims payment could be a serious problem.

The takeaway? Stick with A-rated companies whenever possible. Anything below a B+ is risky, especially for long-term policies like life insurance.

2. Issuer Credit Ratings (ICR) – The Company’s Long-Term Outlook

While FSR measures financial strength, Issuer Credit Ratings (ICR) reflect how well a company is managed and its long-term outlook.

  • aaa – Exceptional credit quality
  • aa – Very strong
  • a – Strong
  • bbb – Good
  • bb, b, ccc, cc, c – Declining financial outlook
  • d – Default or near collapse
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Most everyday consumers don’t dig into ICRs as much, but if you’re looking for a stable, well-run company, aim for an “a” rating or higher.

3. National Scale Ratings (NSR) – Country-Specific Comparisons

This rating is used when comparing insurers within a single country. It helps evaluate how strong a company is within the local market. If you’re only shopping domestically, this might be a helpful indicator.

How to Use AM Best Ratings When Choosing an Insurance Provider

Alright, so now that you understand what AM Best ratings mean, here’s how to actually use them when picking an insurance provider:

  1. Check the company’s FSR first. Stick with A-rated companies if possible.
  2. Look at recent changes. If a company has been downgraded recently, that could be a red flag.
  3. Compare with other rating agencies. While AM Best is the most insurance-focused, you can also check Moody’s or Standard & Poor’s for additional insight.
  4. Consider the ICR. A strong FSR is important, but a good ICR indicates long-term stability.
  5. Factor in your insurance needs. If you’re buying a long-term policy (like life insurance), financial stability is everything.

Common Misconceptions About AM Best Ratings

“A lower rating means the company is bad.”

Not necessarily. Sometimes, smaller insurers have lower ratings simply because they have fewer assets. That doesn’t mean they can’t pay claims—it just means they don’t have the massive financial reserves of industry giants.

“A company with a good rating will always be stable.”

Things change. A company that’s A-rated today could be downgraded tomorrow due to mismanagement, economic downturns, or unexpected liabilities.

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“All rating agencies are the same.”

Nope. AM Best focuses exclusively on insurance. Other agencies like Moody’s and S&P assess a broader range of financial institutions.

Final Thoughts: Why AM Best Ratings Matter for You

At the end of the day, choosing an insurance company is about trust. You’re entrusting them with your future—whether it’s your home, car, health, or life. AM Best ratings offer one of the clearest windows into an insurer’s ability to uphold their end of the deal.

So next time you’re shopping for insurance, don’t just look at the premium price. Check the AM Best rating. It might just save you from a financial disaster down the road.

Want to check an insurance company’s AM Best rating? Head over to ambest.com and search for their latest ratings.

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