An insurance company's credit rating is determined by independent rating agencies, including A.M. Best, Fitch, Moody’s and Standard & Poor’s, according to Investopedia. Each credit rating agency issues a rating based upon evaluation of a company's overall financial strength, which is defined as its ability to pay policyholders' claims.Continue Reading
Each rating agency uses an alphabetical rating scale, though each of the rating agencies uses a different rating system, according to the American Institute of Certified Public Accountants. Therefore, ratings can differ from one rating agency to another, making comparisons across agencies difficult. For example, explains Investopedia, A.M. Best's A+ (superior) is its second-best rating, whereas A+ (strong) is Fitch's fifth-best rating. Furthermore, each insurance company may consist of several subsidiary companies, each with its own credit rating.
Consumers and investors can obtain credit rating information from several sources, explains the American Institute of Certified Public Accountants, including financial services magazines and other publications readily available at a public library, or from each rating agency's website or customer service department.
The rating agencies are overseen by the U.S. Securities and Exchange Commission, according to the commission. The SEC monitors and investigates the rating agencies to protect investors and users of credit ratings, to ensure that credit ratings are not influenced by conflicts of interest and to ensure the ratings' accuracy.Learn more about Insurance