With 15 years of immersion in the world of personal finance, Ashley Kilroy simplifies financial concepts for individuals striving toward financial security. Her expertise has been showcased in reputable publications including Rolling Stone, SmartAsse.
Ashley Kilroy Insurance WriterWith 15 years of immersion in the world of personal finance, Ashley Kilroy simplifies financial concepts for individuals striving toward financial security. Her expertise has been showcased in reputable publications including Rolling Stone, SmartAsse.
Written By Ashley Kilroy Insurance WriterWith 15 years of immersion in the world of personal finance, Ashley Kilroy simplifies financial concepts for individuals striving toward financial security. Her expertise has been showcased in reputable publications including Rolling Stone, SmartAsse.
Ashley Kilroy Insurance WriterWith 15 years of immersion in the world of personal finance, Ashley Kilroy simplifies financial concepts for individuals striving toward financial security. Her expertise has been showcased in reputable publications including Rolling Stone, SmartAsse.
Insurance Writer Ashlee Valentine Deputy Editor, InsuranceAshlee is an insurance editor, journalist and business professional with an MBA and more than 17 years of hands-on experience in both business and personal finance. She is passionate about empowering others to protect life's most important assets. Wh.
Ashlee Valentine Deputy Editor, InsuranceAshlee is an insurance editor, journalist and business professional with an MBA and more than 17 years of hands-on experience in both business and personal finance. She is passionate about empowering others to protect life's most important assets. Wh.
Ashlee Valentine Deputy Editor, InsuranceAshlee is an insurance editor, journalist and business professional with an MBA and more than 17 years of hands-on experience in both business and personal finance. She is passionate about empowering others to protect life's most important assets. Wh.
Ashlee Valentine Deputy Editor, InsuranceAshlee is an insurance editor, journalist and business professional with an MBA and more than 17 years of hands-on experience in both business and personal finance. She is passionate about empowering others to protect life's most important assets. Wh.
| Deputy Editor, Insurance
Updated: Apr 12, 2022, 6:00am
Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors' opinions or evaluations.
Getty
When comparing life insurance policies, one factor worth considering is the financial strength of each insurer. After all, you want to purchase a policy from an insurance company that will be able to pay your beneficiaries in the future.
Assessing a company’s financial strength on your own is impossible. Fortunately, financial rating agencies like AM Best have done the heavy lifting.
Since its beginnings in 1899, AM Best has assessed and analyzed the creditworthiness of insurance companies across the globe. Today, it reports on over 16,000 insurers’ ability to pay their claims, debts and other financial obligations.
A financial strength rating (FSR) is an opinion about an insurance company’s financial health and its likelihood to meet its financial obligations. In other words, it’s an evaluation of how well the insurance company is performing financially and its ability to pay claims and pay off debts.
Independent financial rating companies, such as AM Best, Moody’s and Standard & Poor’s, use their own methodology and ratings scales to determine the financial strength of individual insurers.
AM Best has a financial strength rating scale ranging from A+ to D. Each rating may also have a notch, which signifies the strength of the company’s rating within that category. For example, if an A+ company has an additional “+” next to their ratings, AM Best views its financial strength as impeccable in the A+ category.
Companies have demonstrated a superior ability to meet financial obligations in the eyes of AM Best.Companies have demonstrated an excellent ability to meet their financial obligations in the eyes of AM Best.
Companies have demonstrated a good ability to meet their financial obligations in the eyes of AM Best.
Companies have demonstrated a fair ability to meet their financial obligations in the eyes of AM Best. Also, the company’s financial strength might not be at risk due to specific changes or the current state of the economy.
Companies have demonstrated a marginal ability to meet their financial obligations in the eyes of AM Best. Also, the company’s financial strength might be at risk due to specific changes or the current state of the economy.
Companies have demonstrated a weak ability to meet their financial obligations in the eyes of AM Best. Also, the company’s financial strength might be at a heightened risk due to specific changes or the current state of the economy.
Companies have demonstrated a poor ability to meet their financial obligations in the eyes of AM Best. Also, the company’s financial strength might be at extreme risk due to specific changes or the current state of the economy.
See More See LessAM Best rates insurance companies with a focused ratings methodology, says Ken Johnson, managing director of rating analytics at AM Best.
To determine each company’s financial strength ratings, AM Best looks at multiple factors—qualitative and quantitative—to produce a well-rounded assessment. The core of the quantitative analysis includes a review of:
Johnson notes that in addition to assessing financial statements, AM Best conducts a qualitative assessment through annual rating meetings with each insurance company. These meetings give them full access to the company’s senior management to discuss their growth strategies and earnings, as well as where the company is going. For example, an insurance company might discuss new products on the horizon or their initiatives for innovation.
“Because each FSR from AM Best is forward-looking, these calls are essential for maintaining the usefulness of each company’s rating. In other words, open lines of communication help the analyst to confirm the company is on track to attain their stated goals,” adds Johnson.
The assessment is considered an interactive rating since it assesses qualitative and quantitative factors. This analysis ensures AM Best provides an accurate depiction of the current ratings for consumers.
Helping You Make Smart Insurance DecisionsGet Forbes Advisor’s ratings of the best insurance companies and helpful information on how to find the best travel, auto, home, health, life, pet, and small business coverage for your needs.
Thanks & Welcome to the Forbes Advisor Community!This form is protected by reCAPTCHA Enterprise and the Google Privacy Policyand Terms of Serviceapply.
By providing my email I agree to receive Forbes Advisor promotions, offers and additional Forbes Marketplace services. Please see our Privacy Policy for more information and details on how to opt out.
AM Best reviews each insurance company’s financial strength rating annually. However, each company must complete a variety of checkpoints along the way to make sure that the current rating is in line with their future projections.
“To assess whether each company’s financial health is on track with its current ratings, AM Best reviews the company’s financials every six months. AM Best may also conduct quarterly calls with companies to review earnings,” Johnson says.
“In some cases, it might be necessary to connect with an insurer more than quarterly. For example, if there is a change in management or the company is launching a new product. AM Best will need to account for this information in their rating assessment,” he says.
If AM Best is concerned about a specific rating, it will add an “under review” modifier to the rating. This “under review” modifier is shown by adding a “u” to the rating. A “u” modifier isn’t always ominous because it may have positive implications.
The “u” modifier falls into three categories:
“Although each company is reviewed annually, a ‘u’ modifier may reset the clock a little bit. A company’s rating with an ‘under review’ status can last for up to six months. If the outcome hasn’t been rectified within this timeframe, AM Best will either extend the ‘under review ‘ period if additional information is required or place a rating with the current information available,” Johnson says.
Compare Policies With Leading Insurers
AM Best’s financial strength ratings can help you focus your search on strong companies when you’re looking for the best life insurance. Here’s how to use the AM Best rating for a company you’re considering.
On the AM Best website home page, you’ll see a search box for “Rating Services.” Type in the full name of the company you’re looking for, such as Nationwide Life Insurance Company. Click “Go” and you’ll get the company’s AM Best page with its current financial strength rating, ratings in past years and other information.
There are in-depth reports available for a charge, but you’ll be able to find financial strength ratings for free.
A financial strength rating is strictly a benchmark to compare insurance companies against their peers. For example, the difference between an A+ and an A- might not be because of performance results; it might be related to the business profile from a geographic concentration. In other words, that specific company might not be as diversified as others.
AM Best offers up to five years of ratings and commentary. Taking a look at trends over time can give you an idea of the company’s stability. So, if you see the insurer has had an “A” rating for five years, you feel more confident in your purchasing decision.
Of course, insurance companies want to highlight their good ratings. They might not mention low ratings on their websites. It’s good to find the ratings yourself.
Because rating agencies have their own methodologies, they can disagree on the ratings of specific companies. For this reason, it’s wise to see what different rating agencies have to say about the company you’re considering.
In addition to providing financial strength ratings, AM Best offers:
Compare Policies With Leading Insurers
Was this article helpful?
Share your feedback Send feedback to the editorial team Thank You for your feedback! Something went wrong. Please try again later. Find The Best Life Insurance
By Lena Borrelli
By Ashlee Valentine
By Amy Danise
By Amy Danise
Information provided on Forbes Advisor is for educational purposes only. Your financial situation is unique and the products and services we review may not be right for your circumstances. We do not offer financial advice, advisory or brokerage services, nor do we recommend or advise individuals or to buy or sell particular stocks or securities. Performance information may have changed since the time of publication. Past performance is not indicative of future results.
Forbes Advisor adheres to strict editorial integrity standards. To the best of our knowledge, all content is accurate as of the date posted, though offers contained herein may no longer be available. The opinions expressed are the author’s alone and have not been provided, approved, or otherwise endorsed by our partners.
Insurance WriterWith 15 years of immersion in the world of personal finance, Ashley Kilroy simplifies financial concepts for individuals striving toward financial security. Her expertise has been showcased in reputable publications including Rolling Stone, SmartAsset and Money Talks News. She's committed to equipping readers with the knowledge needed to achieve their financial goals.
© 2024 Forbes Media LLC. All Rights Reserved.
Are you sure you want to rest your choices?The Forbes Advisor editorial team is independent and objective. To help support our reporting work, and to continue our ability to provide this content for free to our readers, we receive compensation from the companies that advertise on the Forbes Advisor site. This compensation comes from two main sources. First, we provide paid placements to advertisers to present their offers. The compensation we receive for those placements affects how and where advertisers’ offers appear on the site. This site does not include all companies or products available within the market. Second, we also include links to advertisers’ offers in some of our articles; these “affiliate links” may generate income for our site when you click on them. The compensation we receive from advertisers does not influence the recommendations or advice our editorial team provides in our articles or otherwise impact any of the editorial content on Forbes Advisor. While we work hard to provide accurate and up to date information that we think you will find relevant, Forbes Advisor does not and cannot guarantee that any information provided is complete and makes no representations or warranties in connection thereto, nor to the accuracy or applicability thereof. Here is a list of our partners who offer products that we have affiliate links for.
