AM Best

What Is AM Best?

AM Best is a credit rating agency focused exclusively on the worldwide insurance industry. AM Best assigns credit ratings that assess an insurance company's creditworthiness, which refers to the likelihood the company will default on its obligations. Consumers, financial professionals, and investors all use AM Best's credit ratings to help them make informed decisions.

AM Best uses a ranking system to provide the marketplace with a quantified assessment of a company's financial health. The U.S. Securities and Exchange Commission (SEC) has designated the company a nationally recognized statistical rating organization.

Understanding AM Best

AM Best is the only credit rating agency that specializes solely in the insurance industry. Moody's, Fitch, and Standard & Poor's rate a wide range of debt instruments from both the public and private sectors in addition to insurance. AM Best's rating system focuses on an insurer's claims-paying ability and the credit quality of its obligations.

Today, consumers will often refer to AM Best's credit ratings to check on the financial stability and reputation of an insurance company before purchasing an insurance product. Financial professionals and investors that are looking to invest in an insurance company through a stock or bond purchase will review the company's AM Best ratings as part of their research and due diligence.

AM Best does business in more than 100 countries and assesses the creditworthiness and reports on over 16,000 insurance companies from around the world.

AM Best Rating System

AM Best issues a Best's Credit Rating (BCR) that rates both financial strength and issuer credit. The former indicates Best's assessment of an insurer's ability to meet its obligations to policyholders. It takes into account both qualitative and quantitative assessments of the balance sheet, operating performance, and business profile. Best has six secure ratings, ranging from the highest A++ to B+, and 10 vulnerable ratings, ranging from B to S, with the lowest indicating a rating was suspended.

Best's short-term credit ratings reflect the company's ability to pay commitments due in less than a year, and they range from a high of AMB1+ to a low of D (in default). Long-term credit ratings reflect the company's ability to pay its commitments maturing in more than a year, and range from AAA (exceptional) to D (in default).

Criticism of AM Best

In Sept. 2008, the financial market crisis hit insurance holding company American International Group (AIG) hard, as enormous losses at its derivative trading subsidiary, AIG Financial Products, threatened to bring down the entire company, including the dozens of insurance companies that it owned. The holding company's stock fell dramatically, and rating agencies were forced to quickly and aggressively cut the company's rating. The federal government took over and bailed out the company with $182 billion of financial support, which was repaid in full by the end of February 2013.

The rating agencies, including AM Best, were sharply criticized for not recognizing sooner the risk that AIG's aggressive trading operations created. Best cut AIG's financial strength rating to A+ (superior) from A++ (superior) and issuer credit ratings to "aa" from "aa+" as the company faced collapse.