The Best Way to Check the Financial Strength of Home Insurance Companies

03 Apr

If you are switching insurance companies, you should always check the financial strength of any insurer you are seriously considering. While an affordable premium is always a plus, if your insurance company cannot afford to pay when you file a claim, the savings will certainly not be worth it. 

A.M. Best is a credit rating agency that has been reviewing insurance companies since 1899. It issues grades on an annual basis that rate an insurers financial strength and its ability to pay out claims. 

Keep reading to learn everything you need to know about A.M. Best ratings and how to use them when shopping for a new policy.

Who is A.M. Best?

An insurer must be financially healthy to be able to pay out claims. A.M. Best is a rating agency that takes a look at an insurance companies balance sheets and other financial data and converts it into letter grades making it easier to be understood by consumers and investors.

Currently, A.M. Best rates over 16,000 insurance companies globally and issues each of them a grade. Grades range from A+ to D, in addition, each grade may also have a “+” or “-“ which indicates its strength. As an example, an A+ company can be rated A++.

A.M. Best issues grades for all different kinds of insurance including life, car and homeowners. 

What factors does A.M. Best consider?

A.M. Best looks at an insurers credit and financial strength in a variety of categories. They look at a company’s ability to meet their short- term, long-term and ongoing business obligations. A.M. Best also issues financial strength ratings (FSRs). Their FSRs look at a company’s ability to cover all its policy and contract obligations.

A.M. Best makes it clear that their ratings are predictions based on financial data, balance sheet strength, as well as performance factors and other data. While A.M. Best has confidence in their rankings, they are not a guarantee of future performance or meant to be used as investment advice.

How does the A.M. Best rating scale work?

A.M. Best grades insurance companies based on their financial health by assigning them letter grades ranging from A+ to D. These grades can also include a notch to further distinguish financial strength within a grade.

As an example, an A+ company that has superior financial strength according to A.M. Best would be given a A++ rating. A company that is not as financially strong or is less solvent might receive a B- grade.  

  • Superior: Rating: A+, Notches: A++
  • Excellent: Rating: A, Notches: A-
  • Good: Rating: B+, Notches: B++
  • Fair: Rating: B, Notches: B-
  • Marginal: Rating: C+, Notches: C++
  • Weak: Rating: C, Notches: C-
  • Poor: Rating: D

How you should use A.M. Best’s ratings

When shopping for a new policy, you should always check the financial strength of any insurers you are seriously considering. It is always a good idea to get the most recent ratings directly from the A.M. Best website.

Major insurers often have numerous subsidiaries operating under different names and A.M. Best grades each company separately so make sure you are looking at the proper company name when researching potential insurance companies. 

When looking at an insurers rating, check its movement over the past few years to make sure it is staying steady or increasing, not on the decline. 

There are other rating agencies that you should be checking as well. These include S&P Global and Moody’s.

While researching an insurers financial strength is always important, it shouldn’t be the only factor that you consider. A.M. Best doesn’t look at customer service or claims handing satisfaction which is also an important factor to consider. 

Use the following to take a look at customer service and claims handling ratings:

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