How Financially Fit is Your Insurance Company?

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Whether we like it or not, insurance companies are a very important part of our lives. Depending on the coverage one buys, we rely on insurance to cover loss on our cars, homes, health, and life. Basically, we look to insurance to protect some of the most important and most valuable aspects of life. And while insurers tell us we are “in good hands,” do you really know how strong those hands are? Fortunately, there are rating companies that asses the financial strength of insurance companies.

There are several major companies that rate the financial strength and credit worthiness of insurance companies: A.M. Best Company, Standard & Poor’s, Weiss Research, and Moody’s Investors Service. These agencies are not affiliated with any particular insurance company, and they offer an unbiased independent third party perspective about each provider. They use a rating scale to gather facts about the financial soundness of each insurance company. While Standard & Poor’s is familiar to many, A.M. Best is the rating company best know for its coverage of the insurance industry.

A.M. Best rates the financial strength of insurance companies through what it calls the Best’s Financial Strength Rating (FSR). It is their formulated opinion that pays attention to the insurer’s financial strength and their ability to meet ongoing insurance policies and contract obligations. It is based on a comprehensive quantitative and qualitative assessment of a company’s balance sheet strength, operating performance and business profile.

A.M. Best’s top rating reflects its confidence in the insurance company’s ability to remain financially sound. When comparing insurance companies, A.M. Best considers types of coverage sold, organizational structure of the company and number of policies written. Superior grades demonstrate a company’s strong name recognition, performance in the market and ability to generate capital, as well as its ability to underwrite by accurately accounting for risks.

Why These Ratings Are Important

Insurance companies rely on the ratings from agency’s like A.M. Best because they enhance consumer confidence in the stability of the insurance company. A high rating can attract the likes of investors, build a customer base and earn customer loyalty. For consumers, the rating can be a determining factor in the decision to purchase insurance from a particular company. An A.M. Best FSR can provide you with additional information as you evaluate insurance options.

Understanding Best’s Financial Strength Ratings

A Best’s FSR can be assigned to an insurance company on an interactive or non-interactive basis. In both cases, the rating scale and descriptors are:

Secure
Vulnerable
A++, A+ (Superior)B, B- (Fair)
A, A- (Excellent)C++, C+ (Marginal)
B++, B+ (Good)C, C- (Weak)
D (Poor)
E (Under Regulatory Supervision)
F (In Liquidation)
S (Suspended)

Rating Modifiers may be assigned to Financial Strength Ratings

Modifier
Descriptor
Definition
u
Under Review
Indicates the rating may change in the near term, typically within six months. Generally is event driven, with positive, negative or developing implications.
pd
Public Data
Indicates rating assigned to insurer that chose not to participate in A.M. Best's interactive rating process.
s
SyndicateIndicates rating assigned to a Lloyd's syndicate.

In addition, Affiliation Codes may be added to identify companies whose assigned ratings include consideration of a group (“g”), pooling (“p”) or reinsurance (“r”) affiliation with other insurers.

Ratings from A to C also may be enhanced with a “++” (double plus), “+” (plus) or “-” (minus) to indicate whether credit quality is near the top or bottom of a category.

A Rating Outlook is assigned to an interactive FSR to indicate its potential direction over an intermediate term, generally defined as 12 to 36 months. A Rating Outlook can be:

Outlook
Definition
PositiveIndicates possible rating upgrade due to favorable financial/market trends relative to the current rating level.
NegativeIndicates possible rating downgrade due to unfavorable financial/market trends relative to the current rating level.
StableIndicates low likelihood of a rating change due to stable financial/market trends.

Top Insurance Companies and Their Rating

Let’s take a look at some of the top insurance companies and their AM Best FSR. You can find this information on the A.M. Best website or on the site of each individual insurance company. This information is readily available, along with the ratings of other independent rating agency’s. Here are a few examples:

Allstate Insurance Company

  • Rating: A+ (Superior)
  • Financial Size Category: XV ($2 Billion or greater)
  • Outlook: Stable
  • Action: Affirmed
  • Long-Term: aa-
  • Outlook: Stable
  • Action: Affirmed
  • Effective Date: December 15, 2010

State Farm Insurance

  • Rating: A++ (Superior)
  • Affiliation Code: g (Group)
  • Financial Size Category: XV ($2 Billion or greater)
  • Outlook: Stable
  • Action: Affirmed
  • Effective Date: April 23, 2010

Prudential Insurance Company

  • Rating: A+ (Superior)
  • Affiliation Code: g (Group)
  • Financial Size Category: XV ($2 Billion or greater)
  • Outlook: Stable
  • Action: Affirmed
  • Long-Term: aa-
  • Outlook: Stable
  • Action: Affirmed
  • Effective Date: June 04, 2010

Fidelity Insurance Company

  • Rating: A- (Excellent)
  • Financial Size Category: VII ($50 Million to $100 Million)
  • Outlook: Stable
  • Action: Affirmed
  • Long-Term: a-
  • Outlook: Stable
  • Action: Affirmed
  • Effective Date: December 14, 2010

GEICO

  • Rating: A++ (Superior)
  • Affiliation Code: g (Group)
  • Financial Size Category: XV ($2 Billion or greater)
  • Outlook: Stable
  • Action: Affirmed
  • Long-Term: aaa
  • Outlook: Stable
  • Action: Affirmed
  • Effective Date: May 06, 2010
Published or Updated: March 6, 2013
About Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Comments

  1. Money Beagle says:

    We have car and home insurance through Allstate, so I was very happy to see that they seem to be in great shape. Thanks for putting this together!

  2. I’m very happy with GEICO, they even lower my rate after I asked for it!

  3. Rusty Emerson says:

    I have always ensured I do a background check of a company’s claim handling reputation and customer service efficiency, before I buy insurance from them. The Hartford has always given me the best value for money service.

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