UPDATED: Mar 13, 2020
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When searching for auto insurance reviews, you may have noticed a company named “A.M. Best” referenced from time to time. The reason why everybody talks about A.M. Best is that they are one of the most trusted names in company reviews. Their reviews of auto insurance companies can always be trusted, but knowing what to look in these reviews can be quite a daunting task.
Car Insurance Ratings Explained
Explaining A.M. Best Company ratings in plain English is not an easy task, and we should begin with a bit of background on the company. Their only business is analyzing the insurance industry, and they have been actively studying it financially since the company was founded in 1899. This is why one usually hears A.M. Best Company ratings explained to insurance agents and investors, who rely on this information as a guide to the stability of a potential underwriter.
Explaining A.M. Best Company ratings to a potential investor would take a slightly different direction. The ratings are a well-established indicator of the financial strength of a company and are widely used by investors and reinsurers, particularly those considering branching into new insurance markets. As you can see, A.M. Best Company ratings explain the implications for companies which are considering strategic partnerships, or for insurance brokerage companies that are interested in using such a firm. How well a company is rated financially is a representation of the industry confidence in the company.
A.M. Best Company ratings explain a lot about an insurer, and an increasingly well-informed public is also making use of them when determining who will insure their property and investments. A.M. Best Company ratings do this using a simple chart showing the immediate financial differences in insurance companies with higher rates of success and those who are left lacking.
The A.M. Best Company ratings explain this data to the general public free of charge since 1999, on their website. It is an effort to inform people of the objective integrity and financial trustworthiness of an insurance corporation. A.M. Best Company ratings explain enough pertinent information that we can see how dependable a company will be in situations that evolve over long and variable financial conditions.
A.M. Best Letter Grades
- A++, A+ (Superior)
- A, A- (Excellent)
- B++, B+ (Good)
- B, B- (Fair)
- C++, C+ (Marginal)
- C, C- (Weak)
- D (Poor)
- E (Under regulatory supervision)
- F (In Liquidation)
A.M. Best Company ratings portray the data using a letter-based grade, A++ for the lowest risk (“superior”), to F for the highest risk group (“in liquidation”), or even S, indicating that ratings have been suspended. A.M. Best Company ratings outline the company reputation further by using other rating modifiers– u (under review), s (syndicate), and pd (public data, and affiliation codes g (group affiliates), p (pooled affiliation), and r (reinsured).
Next in the rating system is the Financial Size Category (FSC), which is indicated by a Roman numeral between I (the lowest), and XV (adjusted policyholder surplus of greater than 2,000); with the indicated numbers being equivalent to perceived value in terms of millions of dollars multiplied by the FSC of the company. This number is a direct representation of a company’s financial ability to handle large debts, and many companies will insist on only being underwritten by a company with a high enough rating and FSC to manage any financial insurance debt that may arise.
A.M. Best Company ratings explain an immense amount of financial detail about insurance companies, and the site offers financial news about them as well. This is what makes having the ratings available to individuals and insurance brokers so important– they can simply look at the scores of a company as compared to other companies of the same type, rather than independently investing many hours of research and data processing. In only a few minutes, a researcher can grasp an overview of the ability of an insurance company to stand by the policies it has underwritten. A.M. Best Company ratings, used in this light, provide a database of financial data, condensed and presented in an easy to understand way.