Effective April 22, 2015
A Best's Financial Strength Rating (FSR) is an independent opinion of an insurer's financial strength and ability to meet its ongoing insurance policy and contract obligations. It is based on a comprehensive quantitative and qualitative evaluation of a company's balance sheet strength, operating performance and business profile. For more detailed information, read our Guide to Financial Strength Ratings.
A.M. Best's rating system has a proven track record in indicating insurance companies that may, over time, encounter financial difficulties (see Best's Impairment Studies: Life/Health, Property/Casualty). As such, a Best's FSR is recognized worldwide as the benchmark for assessing and comparing insurers' financial strength. Such a benchmark is increasingly important to an international market that looks for a strong indication of stability in the face of widespread deregulation, mergers, acquisitions and other dynamic factors.
For insurance companies, a Best's FSR is a strategic tool that can enhance consumers' confidence in the organization's stability, as well as its attractiveness to investors. A rating also enhances an insurer's credibility with reinsurers - a valuable resource, particularly for insurers entering new markets.
Insurance professionals depend on a Best's FSR to assess the creditworthiness of an insurer's operations, to evaluate prospective reinsurance accounts, to compare company performance and financial condition, and more. A rating can influence an agent's selection of plans to market.
A rating also is an important factor in the consumer's decision-making process to purchase insurance. Today's insurance consumers are well aware of how regional, political and economic instabilities can affect a marginal company. A Best's FSR can provide consumers with the information necessary for an educated buying decision.
A Best's FSR can be assigned to an insurance company on an interactive or non-interactive basis. In both cases, the rating scale and descriptors are:
|A++, A+ (Superior)||B, B- (Fair)|
|A, A- (Excellent)||C++, C+ (Marginal)|
|B++, B+ (Good)||C, C- (Weak)|
|E (Under Regulatory Supervision)|
|F (In Liquidation)|
Rating Modifiers may be assigned to Financial Strength Ratings.
|u||Under Review||Indicates the rating may change in the near term, typically within six months. Generally is event driven, with positive, negative or developing implications.|
|pd||Public Data||Indicates rating assigned to insurer that chose not to participate in A.M. Best's interactive rating process (discontinued in 2010).|
|s||Syndicate||Indicates rating assigned to a Lloyd's syndicate.|
Ratings from A to C also may be enhanced with a "++" (double plus), "+" (plus) or "-" (minus) to indicate whether credit quality is near the top or bottom of a category.
An Outlook is assigned to an interactive FSR to indicate its potential direction over an intermediate term, generally defined as 12 to 36 months. An Outlook can be:
|Positive||Indicates possible rating upgrade due to favorable financial/market trends relative to the current rating level.|
|Negative||Indicates possible rating downgrade due to unfavorable financial/market trends relative to the current rating level.|
|Stable||Indicates low likelihood of a rating change due to stable financial/market trends.|
To enhance the usefulness of ratings, A.M. Best assigns each rated (A++ through D) insurance company a Financial Size Category (FSC). The FSC is based on adjusted policyholders' surplus (PHS) in U.S. dollars and may be impacted by foreign currency fluctuations. The FSC is designed to provide a convenient indicator of the size of a company in terms of its statutory surplus and related accounts.
Many insurance buyers only want to consider buying insurance coverage from companies that they believe have sufficient financial capacity to provide the necessary policy limits to insure their risks. Although companies utilize reinsurance to reduce their net retention on the policy limits they underwrite, many buyers still feel more comfortable buying from companies perceived to have greater financial capacity.
|Financial Size Category|
|Class||Adj. PHS ($ Millions)||Class||Adj. PHS ($ Millions)|
|I||Less than 1||IX||250 to 500|
|II||1 to 2||X||500 to 750|
|III||2 to 5||XI||750 to 1,000|
|IV||5 to 10||XII||1,000 to 1,250|
|V||10 to 25||XIII||1,250 to 1,500|
|VI||25 to 50||XIV||1,500 to 2,000|
|VII||50 to 100||XV||2,000 or greater|
|VIII||100 to 250|
The Not Rated (NR) designation is assigned to companies that are not rated by A.M. Best.
Best's Credit Ratings are proprietary and may not be reproduced without permission from A.M. Best. A company assigned a Best's Credit Rating should review the Guide to Proper Use, which outlines the acceptable parameters of the use of these ratings.
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