Understanding A.M. Best Ratings
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With the recent challenges faced by various insurance companies and the hardening insurance market, it’s more important than ever to scrutinize financial stability when considering an insurance carrier. There are several rating agencies that review insurance companies’ financial information, but the most commonly used is A.M. Best.
A.M. Best provides ratings and financial data for the insurance industry worldwide, and they’re the standard on which we evaluate the stability of an insurance carrier. A.M. Best provides access to insurance company ratings and profiles free of charge on their corporate website – www.ambest.com.
In their evaluation, A.M. Best assigns both a Financial Strength Rating and a Financial Size category to each insurance carrier. Both are very important items to review when considering your insurance program, as not only do they evaluate the ability of an insurance carrier to pay its claims and meet their ongoing obligations to policyholders, but many of your organization’s contracts may require a minimum rating in order to do business. If your insurance program is with a carrier that falls below the outlined minimum threshold, you may be in breach of contract.
A.M. Best’s Financial Strength Ratings
This is an opinion assigned by A.M. Best based on an insurance carrier’s strength and ability to meets its obligations to policyholders. A rating outlook of Positive, Negative or Stable is also assigned to each carrier, which indicates its potential direction over the next 12-36 months.
It’s important to note that while A.M. Best’s ratings express their opinion of the ability of an insurance carrier to meet their responsibilities, it’s not a warranty of a company’s financial strength and ability to meet their obligations to policyholders.
A.M. Best’s Financial Size Category (FSC)
The Financial Size categories are based on adjusted policyholders’ surplus and are designed to indicate the size of a company in terms of its statutory surplus and related accounts.
Note: Ranges are in millions of dollars.
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