How Can You Tell If An Insurance Company is Financially Stable?

You might have the best car insurance policy in the world – but that car insurance policy is meaningless if the company isn’t financially stable.

Many policyholders assume their insurance company is financially stable. However, even the world’s largest insurance companies may have financial issues.

How can you tell if your insurance company is financially stable? Keep reading to find out.

is my insurance company financially stable?

Check Insurance Rating Organizations

Fortunately for you, there are entire companies dedicated to assessing the financial strength of insurance companies and other organizations. Organizations like A.M. Best and Moody’s, for example, release annual reports assessing the financial strength of various companies.

There are dozens of insurance rating organizations. However, the four biggest and most notable ones include:

  • A.M. Best
  • Fitch
  • Moody’s
  • Standard & Poor’s

You may know these companies for more than just insurance company financial strength ratings; they also assess the financial strength of companies in other industries. Three of the companies above, including Standard & Poor’s, Fitch, and Moody’s, evaluate the financial strength of entire countries, rating them based on letter grades (with ratings like AAA or AA+ being the highest and ratings of C or D being the lowest).

All of the rating agencies above use some type of A to D scale.

A.M. Best, for example, has a rating of A++ at the highest end of its scale, while Standard & Poor has an upper limit of AAA.

On the lower end of the scale, an insurance company with a poor financial rating could receive a CCC, CC, C, or D from Standard & Poor.

Some rating agencies, including Standard & Poor, also post an outlook for each company. The outlook could be ‘Stable’ or ‘Negative’ based on the perception of where the company is going next.

Latest Credit Ratings for Major American Insurance Companies

Here are the most recent credit ratings for major American insurance companies as of 2019.

GEICO

A.M. Best: A++

Standard & Poor’s: AA+

Progressive

A.M. Best: A++

Standard & Poor’s: AA

Fitch: AA

Travelers

A.M. Best: A

Standard & Poor’s: AA

Fitch: AA

Moody’s: Aa2

State Farm

A.M. Best: A++

Standard & Poor’s: AA

MetLife

A.M. Best: A++

Standard & Poor’s: AA-

Moody’s: Aa3

Nationwide

A.M. Best: A++

Standard & Poor’s: A+

Moody’s: A1

Liberty Mutual

A.M. Best: A

Standard & Poor’s: A+

Moody’s: A2

AIG

A.M. Best: A

Standard & Poor’s: A+

Fitch: A

Moody’s: A2

The Hartford

A.M. Best: A

Standard & Poor’s: A

Fitch: A2

Moody’s: A+

The Hanover

A.M. Best: A

Standard & Poor’s: A-

Moody’s: A3

USAA

A.M. Best: A++

Erie Insurance

A.M. Best: A+

American Family Insurance

A.M. Best: A

Amica Mutual

A.M. Best: A++

What Do These Rankings Mean?

Rankings vary in meaning between companies. Here’s how ratings work for each of the organizations above:

A.M. Best

  • AAA (Exceptional)
  • AA (Very Strong)
  • A (Strong)
  • BBB (Adequate)
  • BB (Fair)
  • B (Marginal)
  • C (Poor)
  • D (In Default)

Fitch

Fitch Long-Term Ratings

  • AAA: Exceptionally Strong
  • AA: Very Strong
  • A: Strong
  • BBB: Good
  • BB: Moderately Weak
  • B: Weak
  • CCC: Very Weak
  • CC: Extremely Weak
  • C: Distressed

Fitch Short-Term Ratings

  • F1: Very capable of meeting all short-term obligations
  • F2: Good ability to pay short-term financial obligations
  • F3: Adequate ability to pay short-term financial obligations
  • B: Weak ability to pay short-term financial obligations
  • C: Very weak ability to pay short-term financial obligations

Standard & Poor’s

  • AAA: Highest rating possible
  • AA: Very strong
  • A: Strong
  • BBB: Adequate
  • BBB-: Less than adequate
  • BB+: Speculative and may face adverse market conditions
  • BB-: Long-term uncertainty
  • B: Vulnerable to uncertain economic conditions
  • CCC: Company is in a vulnerable financial condition
  • CC: Company is in a highly susceptible financial condition
  • C: Even more highly vulnerable
  • D: Company has defaulted

Why Are Some Insurance Companies Ranked Lower Than Others?

Several factors can cause an insurance company’s credit rating to drop, including:

  • A general economic or market downturn
  • Too narrow (or too broad) of a business focus
  • Individual debt issues
  • Business climate changes
  • Regulatory changes
  • Multiple major disasters in significant customer bases in a short time
  • Lack of diversification

All of the factors above influence the financial strength of a company in some way or another. When one of these factors is affected, it impacts the financial strength or stability of the company, causing the rating of the company to drop.

What Causes Financial Strength Ratings to Change?

A car insurance company might have a bad financial strength rating today. That doesn’t mean it has to have a bad rating forever.

Some of the factors that can cause a rating to change include:

  • A change in the insurance marketplace or general economy
  • A change in the company’s structure or management
  • A large number of claims paid
  • A reduction or increase in the company’s financial reserves

Based on all of these factors, a company’s financial stability rating can go up or down.

Final Word

Major insurance companies in the United States are unlikely to fail. However, people said the same thing about America’s largest banks before the 2007/2008 financial crisis. Nothing is certain. Some insurance companies have poorer financial stability rankings than others, which means policyholders are less likely to get paid if disaster strikes the company.

Smart drivers buy car insurance from stable, reputable, financially secure companies. Consider checking the financial strength of your car insurance company by visiting one of the following resources:

A.M. Best: www.ambest.com (or call (908) 439-2200)

Fitch: www.fitchratings.com (or call (212) 908-0500)

Moody’s: www.moodys.com

Standard & Poor’s: www.standardandpoors.com (or call (212-438-2000)

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