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How can I assess the financial strength of an insurance company? PDF Print E-mail
Four independent agencies-A.M. Best, Fitch, Moody's and Standard & Poor's-rate the financial strength of insurance companies. Each has its own rating scale, its own rating standards, its own population of rated companies, and its own distribution of companies across its scale. Each agency uses numbers or plusses and minuses to indicate minor variations in rating from another rating class.

The agencies disagree often enough so that you should consider a company's rating from two or more agencies before judging whether to buy or keep a policy from that company. Moreover, agencies will announce changes of ratings on any day. It's probably prudent to check annually on the ratings of any company you're interested in.

Some points for using the ratings:
  • Don't rely only on what the insurance companies say about their ratings from these agencies. Companies are likely to highlight a higher rating from one agency and ignore a lower one from another agency, or to select the most favorable comments from a rating agency's report.
  • To use the ratings from more than one independent agency, you need to understand that each agency's rating code is different from the others. For example, an A+ from A.M. Best is the next-to-top rating of its 15 categories, but an A+ from Fitch or S&P is their 5th-highest rating (out of 24 categories for Fitch, and out of 19 categories for S&P). Moreover, Moody's doesn't have an A+ rating.
However, the ratings can be classified into "secure" and "vulnerable" mega-categories. Here, as of August 2008, are the rating scales for each of the "secure" rating classes, and all the "vulnerable" classes combined (source, except for Weiss: The Insurance Forum, September 2008 issue).

Rating Agency
Category
Description
# of companies in category
% of rated companies
in category
A.M. Best A++ Superior 37 3.8
  A+ Superior 149 15.4
  A Excellent 194 20.1
  A- Excellent 285 29.5
  B++ Very good 128 13.3
  B+ Very good 99 10.3
  B and lower Vulnerable 63 6.5
         
Fitch AAA Exceptionally strong 10 3.2
  AA+ Very strong 46 14.5
  AA Very strong 50 15.8
  AA- Very strong 56 17.7
  A+ Strong 64 20.2
  A Strong 45 14.2
  A- Strong 16 5.0
  BBB+ Good 17 5.4
  BBB Good 5 1.6
  BBB- Good 2 1.9
  BB+ and lower Vulnerable 2 0.6
         
Moody's Aaa Exceptional 6 3.2
  Aa1 Excellent 11 5.9
  Aa2 Excellent 36 19.1
  Aa3 Excellent 51 27.1
  A1 Good 19 10.1
  A2 Good 15 8.0
  A3 Good 10 5.3
  Baa1 Adequate 12 6.4
  Baa2 Adequate 1 0.5
  Baa3 Adequate 12 6.4
  Ba1 and lower Vulnerable 15 7.9
         
S & P AAA Extremely strong 21 5.8
  AA+ Very strong 23 6.4
  AA Very strong 69 19.1
  AA- Very strong 49 13.6
  A+ Strong 38 10.5
  A Strong 77 21.3
  A- Strong 29 8.0
  BBB+ Good 19 5.3
  BBB Good 9 2.5
  BBB- Good 10 2.8
  BB+ and lower Vulnerable 17 4.8
         
*2004 figures; updated information not available
**As of March 25, 2003
Ratings Agency Contact Information

All of the ratings agencies can be found on the Web, or reached by phone.


Agency
Web site
Address
Phone number
A.M. Best Company, Inc www.ambest.com Ambest Rd.
Oldwick, NJ 08858		 908-439-2200
Fitch Ratings www.fitchibca.com 1 State Street Plaza
New York, NY 10004		 1-800-75-FITCH
Moody's Investor Services* www.moodys.com 99 Church Street New York, NY 10007 212-553-0300
Standard & Poor's Insurance Ratings Services* www2.standardandpoors.com 55 Water Street
New York, NY 10004		 212-438-2000

*To use these Web sites, you have to register, but the service is free.

 
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