A Look at AM Best Insurance Ratings

Whether you are purchasing life insurance, health insurance, or annuities for your retirement, researching the credit rating of the insurance carrier you are will use is a critical part of the equation. The financial strength of the insurance company that you are using may be a determining factor in the reliability of your insurance contract or annuity.

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We purchase insurance and annuities to give us peace of mind and a feeling of security.  This is why you should check the insurance rating of the company before investing your retirement money or purchasing insurance contracts. You want to make sure that the company will be around when you need it to be. There have been very few failures of insurance companies; however that is no guarantee of the future.

AM Best is one of the top insurance company raters in the industry. They rate companies based on the categories of property and casualty and Life/Health/HMO. They assess the financial stability and claims paying ability of an insurance company using very strict standards. They have been applying a letter rating to insurance companies since 1976.  AM Best rates an insurance company on both a qualitative and a quantitative basis.

Quantitative Evaluation:

  • Profitability
  • Leverage
  • Liquidity
  • Reserve adequacy
  • Reinsurance

Qualitative Evaluation:

  • Spread of Risk
  • Soundness of Reinsurance
  • Quality and Diversification of Assets
  • Adequacy of Policy Reserves
  • Adequacy of Surplus
  • Capital Structure
  • Skill of Management

AM Best insurance ratings gives letter rankings to the companies that it evaluates.  The ratings go from A++ as the highest possible rating to F which is the lowest possible rating.  The highest rating of A++ means that the company is superior in profitability, leverage and liquidity. It also means that the company is having favorable experience with mortality, a low policy lapse rate, and low expenses. This rating also means that the company has a solid financial portfolio and surplus assets as compared to other insurers.

AM Best’s Insurance Company Ratings System

Letter RatingMeaning of the Rating
A++, A+This rating means that the company is in a superior financial position to meet it’s policyholder obligations as well as it’s other financial obligations easily.
A, A-This rating means that the company is in an excellent position to meet it’s obligations to policyholders and creditors.
B++, B+This rating means that the company is in a good position to meet it’s obligations.
B, B-This rating means that the company is likely to be able to meet its obligations, but is more vulnerable to economic changes. Use caution at and below this rating.
C++, C+This is a Marginal rating from AM Best.  You are taking a big chance of having problems with your contracts being met with a company in this category.
C, C-This company may not be able to meet it’s obligations.  Stay away from this company.


Below this rating we don’t really even care what is being said, because you should not ever purchase insurance or buy annuities from a company that is this low in status. When purchasing an annuity from an insurance companythere are some special considerations to take into account:

Fixed Annuities and Indexed Annuities Credit Rating Considerations

When you are purchasing a fixed or an indexed annuity you are obviously looking for the safest type of annuity you can find. People who typically purchase these types of annuities want to at all costs, protect their principal.  A fixed annuity will guarantee that you will earn a set rate for a period of time on your principal.

An indexed annuity will allow you to benefit from potential market gains by paying a higher rate if the markets do well. They give a minimum return if the market underperforms.  The most important aspect of these two types of annuities is that they will generally preserve the principal investment.

Your principal guarantee however is directly tied to the credit worthiness of the insurance company with a fixed or indexed annuity. That is why it is imperative for you to select a carrier that has a superior credit rating. If you select a carrier with a low rating, you are defeating the purpose of having a guaranteed annuity.

Variable Annuities Credit Rating Considerations

When you purchase a variable annuity, your money is invested with number of mutual fund companies that the insurance company has selected to use for its clients. You can see the companies that they use in their brochures and prospectus. You may be able to check on the performance record of the mutual funds they use to get a feel for what you might experience.

The credit rating of the insurance company that is holding your variable annuity is obviously very important as well, however, since your money is invested with a variety of different mutual funds, if the insurance company goes bankrupt your investments will not likely be affected. The insurance company has placed your money with a third party so your money is not a part of their bankruptcy.

In a way, this is one advantage of variable annuities over fixed. Although, just making sure you have a solid company in the beginning is a better choice. If you have a variable annuity that has living benefits, like minimum guaranteed income riders or other things that are extra benefits, the credit rating of the company is more important. These benefits are all tied to the company being in a financial position to honor these contractual obligations.

Examples of AM Best Ratings

Some of AM Best’s top ranked companies recently are New York Life and Met Life.  New York Life has an A++ rating and Met Life has an A+.  Presidential Life and Equity Trust fall in the marginal section with B+ ratings. These are just a few examples. There are many others across the whole range of ratings. Just be sure that before you make your purchase of insurance or annuities that you check the AM Best rating so that you know you are working with a reliable partner.

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