There are several independent companies that provide reliable ratings on the financial stability of insurance companies. These ratings will help you determine the likelihood your insurance provider will be solvent in your time of need. The five major raters are:- A.M. Best
- Duff & Phelps
- Moody's Investors Services
- Standard & Poor's (S&P)
- Weiss Research
Making the grade
When evaluating an insurance company, raters base their grades on several factors. These include:
- How widely the company spreads its risk
- Size of its surpluses and reserves
- Quality of management
- Profitability
- Investment returns
- Mortality experience
- Expense ratios
- Debt levels
- Cash available to pay claims
- Quality of assets
After assessing these criteria, a rating is assigned and a company will be given one of the following marks:- Superior
- Excellent
- Very good and good
- Fair
- Marginal
- Below minimum standards
- Under state supervision, in liquidation, or failed
Keep in mind that there are many companies that fall into the superior and excellent categories, so you shouldn't feel you have to go any lower in order to get a reasonable package. Also, when looking at a company's ratings, realize that some rating companies are more subjective than others even though they may have one or more quantitative elements. Ask to see their ratings criteria before reading their report.
One more step
Unfortunately, it's not as simple as that. Each rating company assigns different symbols to signify each of these marks, so at first glance a company's report card can be deceiving. Take a careful look at the following – it'll help you weed through the symbols and get a clearer indication of how a company has scored.
Superior
A superior rating signifies overall superior performance relative to industry averages.
- A.M. Best: A++, A+
- Duff & Phelps: AAA
- Moody's Investors Services: Aaa
- Standard & Poor's (S&P): AAA
- Weiss Research : A
Excellent
An excellent rating signifies overall excellent performance relative to industry averages.
- A.M. Best: A, A
- Duff & Phelps: AA+ to AA-
- Moody's Investors Services: Aa
- Standard & Poor's (S&P): AA+ to AA
- Weiss Research: A
Very good and good
A very good or good rating signifies overall performance relative to industry averages.
- A.M. Best: B++ to B
- Duff & Phelps: BBB+ to BBB-
- Moody's Investors Services: Ba
- Standard & Poor's (S&P): A+ to BBB
- Weiss Research: B
Fair
A fair rating signifies fair overall performance relative to industry averages.
- A.M. Best : C++ to C+
- Duff & Phelps: BB+ to BB-
- Moody's Investors Services: B
- Standard & Poor's (S&P): BB+ to BB-
- Weiss Research: C
Marginal
A marginal rating signifies marginal overall performance relative to industry averages.
- A.M. Best: C to C
- Duff & Phelps: B+ to B-
- Moody's Investors Services: Caa
- Standard & Poor's (S&P): B+ to B-
- Weiss Research: D
Below minimum standards
A company given the below minimum standard rating does not meet minimum standards for financial strength.
- A.M. Best: D
- Duff & Phelps: CCC
- Moody's Investors Services: Ca
- Standard & Poor's (S&P): CCC
- Weiss Research: E
Under state supervision, in liquidation, or failed
Companies given an under state supervision, in liquidation, or failed rating have been placed under supervision, control, or restraint by a state insurance regulatory agency.
- A.M. Best: E or F
- Duff & Phelps: CCC or DD
- Moody's Investors Services: C
- Standard & Poor's (S&P): R
- Weiss Research: F
Continue to: Part IV – Insurance providers
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