An insurance company credit rating is the opinion of an independent agency regarding the company's financial strength and ability to pay policyholders’ claims. It doesn't indicate how well the insurance company’s securities are performing forinvestors. In addition, an insurance company’s credit rating is considered an opinion, not a fact, and ratings of the same insurance company can differ among rating agencies.
Key Takeaways
- An insurance company credit rating indicates an insurance company's solvency, financial strength, and ability to pay policyholder claims.
- An insurance company credit rating is considered an opinion (not a fact) issued by an independent agency.
- Because each independent rating agency has its own rating scale, the same insurance company can receive different ratings among the various agencies.
- The four major insurance company rating agencies in the U.S. are A.M. Best, Moody's, Standard & Poor's, and Fitch.
Understanding Insurance Company Credit Ratings
There are four major insurance company rating agencies: Moody’s, A.M. Best, Fitch, and Standard & Poor’s (all but A.M. Best also provide corporate credit ratings for investors). Each agency has its own rating scale that doesn’t necessarily equate to another company’s rating scale, even when the ratings appear similar.
For example, A.M. Best’s highest insurance company credit rating is A++, meaning superior, while Fitch’s is AAA for exceptionally strong, Moody’s is Aaa for the highest quality, and Standard & Poor’s is AAA for extremely strong. It is important not to confuse, for example, A.M. Best’s second-best rating of A+ (for superior) with Fitch’s fifth-best rating of A+ (for strong), or A.M. Best’s C rating (for weak) with Moody’s C (for lowest rated).
Special Considerations
An entity that appears to be a single, major insurance company may be composed of several smaller insurance companies, each with its own insurance company credit rating. For example, MetLife, Inc., has a number of subsidiaries, including American Life Insurance Company, Metropolitan Tower Life Insurance Company, and Delaware American Life Insurance Company. Each subsidiary will have its own insurance company credit rating based on how the rating agency in question views that company's financial strength.
What's more, these ratings differ from the parent company’s corporate credit ratings, which can include separate ratings for preferred stock and senior unsecured debt.
Benefits of Insurance Company Credit Ratings
Insurance company credit ratings are important because many people and businesses depend on insurance companies to pay claimswhen they suffer an insured loss. Insured risks are usually those that would cause a large financial loss if not insured. However,insurance companiescan only payif they have the money. Like other businesses, insurance companies canbecome insolvent.
Additionally, many people and businesses depend on insurance companies to pay for legal services, such as defendingagainst a lawsuit. Few people can afford the exorbitant costs of today's litigations. Without money for defense, they could be held unjustly liable for an occurrence. To prevent these tragedies, people and businesses purchase insurance. Insurance company credit rating agencies seek to prevent insurance company insolvencyby issuinginsurer financial strength ratings(IFSratings) that are freely available for public inspection.
Why should consumers check an insurance company's credit ratings?
They tell consumers whether or not an insurer can be expected to pay claims. People and businesses depend on insurance companies to pay claimswhen they suffer an insured loss. Insurance company credit rating agencies seek to prevent insurance company insolvencyby issuinginsurer financial strength ratings(IFSratings) that are freely available for public inspection.
Which are the four major credit rating agencies?
Moody’s, A.M. Best, Fitch, and Standard & Poor’s are the best-known ratings agencies (all except A.M. Best also provide corporate credit ratings for investors). Each agency has its own rating scale that doesn’t necessarily equate to another company’s rating scale, even when the ratings appear similar.
FAQs
A credit rating is an opinion of a particular credit agency regarding the ability and willingness an entity (government, business, or individual) to fulfill its financial obligations in completeness and within the established due dates. A credit rating also signifies the likelihood a debtor will default.
Is B++ a good rating for an insurance company? ›
B++, B+ Good Assigned to companies that have, in our opinion, a good ability to meet their ongoing insurance obligations.
What is a good credit rating for an insurance company? ›
Understanding Insurance Company Credit Ratings
For example, A.M. Best's highest insurance company credit rating is A++, meaning superior, while Fitch's is AAA for exceptionally strong, Moody's is Aaa for the highest quality, and Standard & Poor's is AAA for extremely strong.
What is the rating system for insurance companies? ›
There are four main rating agencies: A.M. Best, Standard & Poor's, Moody's and Fitch. Each of these rating agencies use their own proprietary scale to rate an insurance company. Their rating refers only to the financial strength of the insurance company and is not a recommendation of a particular annuity product.
What are the 5 C's of credit rating? ›
The 5 C's of credit are character, capacity, capital, collateral and conditions. When you apply for a loan, mortgage or credit card, the lender will want to know you can pay back the money as agreed. Lenders will look at your creditworthiness, or how you've managed debt and whether you can take on more.
What is a good credit rating example? ›
If your credit score is between 725 to 759 it's likely to be considered very good. A credit score of 760 and above is generally considered to be an excellent credit score. The credit score range is anywhere between 300 to 900. The higher your score, the better your credit rating.
What are the three methods of insurance rating? ›
In property and casualty insurance, there are three basic rate-making methods:
- Judgment Rating is used when the factors that determine potential losses are varied and cannot easily be quantified. ...
- The second rate making method is class rating, or manual rating. ...
- The third rate making method is merit rating.
Five independent agencies—A.M. Best, Fitch, Kroll Bond Rating Agency (KBRA), 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.
What is a A+ rated insurance company? ›
An A+ rated insurance company with credible coverage is defined as an insurance company that credit agencies count as liable, dependable, and on strong financial footing. In other words, an insurance company can only be rated as an A company if they're almost always going to honor the terms of your policy.
How to determine the financial strength of an insurance company? ›
Looking up a company's rating will provide you with a snapshot of that company's financial health. Tracking the company's rating on a regular basis may give you some advance warning of trouble. The four most prominent rating companies are A.M. Best, Standard & Poor's, Moody's Investors Service, and Fitch Ratings.
The most well-known insurance specific rating company, the scores provided by AM Best are often considered the yardstick for financial strength in the industry. The highest rating offered is A++ (Superior) while the lowest is a D (Poor).
What is insurance credit scoring? ›
An insurance score is a score calculated from information on your credit report. Credit information is very predictive of future accidents or insurance claims, which is why Progressive, and most insurers, uses this information to help develop more accurate rates.
Is B+ a good rating for an insurance company? ›
If a company is considered secure, it will receive ratings of A++ or A+ (superior), A or A- (excellent) or B++ or B+ (good).
Is A+ better than AA? ›
For example, with S&P and Fitch, a rating of AA+ is better than AA, and a rating of AA- is worse than AA but better than A+. Moody's uses numbers to indicate relative quality, with Aa1 being the best Aa rating, followed by Aa2 and Aa3.
What is a standard rating in insurance? ›
The standard rating is the most common classification. Life insurance companies offer standard life insurance in the form of term life insurance, where coverage lasts a period of 10, 15, 20 or 30 years.
Is a credit rating of 777 good? ›
Your score falls within the range of scores, from 740 to 799, that is considered Very Good. A 777 FICO® Score is above the average credit score. Consumers in this range may qualify for better interest rates from lenders. 25% of all consumers have FICO® Scores in the Very Good range.
Is a credit rating of 700 good? ›
For a score with a range between 300 and 850, a credit score of 700 or above is generally considered good. A score of 800 or above on the same range is considered to be excellent. Most consumers have credit scores that fall between 600 and 750. In 2023, the average FICO® Score☉ in the U.S. reached 715.
What is a 750 credit rating? ›
A 750 FICO® Score is above the average credit score. Borrowers with scores in the Very Good range typically qualify for lenders' better interest rates and product offers. 25% of all consumers have FICO® Scores in the Very Good range.
What does a credit rating tell you? ›
A credit rating measures the ability of a business or government to repay its financial obligations by looking at its history of borrowing and repaying loans. A credit score does the same, but measures individuals (and in some cases, small businesses).
