Insurance Company Ratings Explained

Because an insurance company’s ratings are an indicator of its financial strength and ability to honor its contractual obligations to policyholders, they should always be considered before purchasing any annuity.

There are four main insurance company rating agencies: A.M. Best, S&P Global, Moody’s Investors Service, and Fitch Ratings. Each insurance company rating agency uses its own proprietary scale to rate an insurance company. The rating refers only to the financial strength of the insurance company and is not a recommendation of a particular annuity product. So, what are insurance agency ratings and how do they work?

Insurance Agency Ratings Explained

An insurance agency rating is simply the opinion of an independent agency regarding the financial strength of a particular insurance company. These ratings, offered by the four main insurance company rating agencies mentioned above, typically assign a letter grade to various insurance companies. An insurance company’s credit rating will indicate the insurance company’s present-day solvency, financial strength, and their perceived ability to pay out policyholder claims.

It should also be noted that these ratings are not evaluating the performance of their securities or any of their products; it is merely a rating of their current financial standing. A graded letter scale is used by insurance credit rating agencies to classify each insurance company. A higher grade for an insurance agency indicates that they are seen as financially stronger and as more likely to pay out on any claims made. Lower grades are reserved for insurance agencies that may be unable to pay out on claims. Basically, the higher an insurance company’s independent rating, the less of a risk it is to you. It is also important to remember that each of the four main rating agencies uses a unique graded letter scale.

Below, you will find a table that outlines each of these four rating agencies’ letter grade scales and their meaning:

Rating Agency Letter Grades Overview

Footnotes:

  1. A.M. Best Company. Dec. 17, 2019. “Guide to Best’s Financial Strength Ratings — (FSR).” http://www.ambest.com/ratings/guide.pdf. Accessed June 15, 2020.
  2. S&P Global. “A Credit Rating is an Informed Opinion.” https://www.spglobal.com/ratings/en/about/understanding-ratings. Accessed June 15, 2020.
  3. Moody’s Investors Service. January 2020. “Rating Symbols and Definitions.” https://www.moodys.com/sites/products/AboutMoodysRatingsAttachments/MoodysRatingSymbolsandDenitions.pdf. Accessed June 15, 2020.
  4. Fitch Ratings. March 26, 2020. “Special Report: Ratings Definitions.” https://www.tchratings.com/research/fund-asset-managers/ratings-denitions-26-03-2020. Accessed June 15, 2020