Q:

How do A.M. Best insurance ratings work?

A:

Quick Answer

A.M. Best's ratings indicate how well an insurance company can meet its financial obligations. The organization issues three types of ratings: financial strength, issuer credit and debt, according to their official website.

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How do A.M. Best insurance ratings work?
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Full Answer

A.M. Best's Financial Strength Rating indicates how well an insurance company can meet its financial obligations from insurance policies and contracts, says the website. A high rating such as A++ can make an insurance company attractive to customers and investors because it reflects excellent financial health. On the other hand, a low rating such as C indicates poor financial condition, information that can be valuable for those who are making purchase or investment decisions.

The company's website also says that the Issuer Credit Rating is assigned to insurance companies and other types of businesses that can legally issue financial obligations such as loans. The rating reflects an insurance company's ability to meet its senior, or high-priority, financial obligations other than policies and contracts. Insurance company ratings range from AAA, or exceptional, to C, or poor.

The Debt Ratings, according to the website, are for securities that insurance companies issue. Wikipedia.org defines insurance-linked securities as financial instruments such as bonds. The ratings indicate how well an insurance company can meet its obligations to security holders and range from AAA, or exceptional, to D, or in default.

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