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Understanding Insurance Ratings, and Insurance Rating Companies

Your long term care insurance is only as good as the company that issues  it. So when you buy life insurance, it's wise to make certain that the issuing company is financially sound. The A.M. Best Company, Standard & Poor's, and Moody's Investors Services are well-regarded rating companies that provide objective measures of insurance companies' creditworthiness. Here is a sample of their ratings and what they mean.

  • A.M. Best Company
  • Standard & Poor's
  • Moody's  Investors Services

The A.M. Best Company:  A.M. Best is perhaps the best known of all the insurance rating companies. It publishes  over 50 different information products about insurance companies  and the insurance industry. Here is an overview of what the  A.M. Best rating system means.

The following ratings  are considered "secure" ratings by A. M. BEST:
A++  and A+ (Superior):

The  company has demonstrated superior overall performance and has a very strong ability to meet its obligations to policyholders over a long period of time. A++  and A+ (Superior):

A  and A- (Excellent):

The  company has demonstrated excellent overall performance  and has a strong ability to meet its obligations to policyholders over a long period of time.

B++ and B+ (Very Good):

The  company has demonstrated very good overall performance  and has a good ability to meet its obligations  to policyholders over a long period of time.
The  following ratings indicate that a company is "vulnerable" to financial difficulties in the future by A. M. BEST:
B  and B- (Adequate):

 The company has an adequate overall performance and can meet its obligations to policyholders,  but may be vulnerable to unfavorable changes in underwriting or economic conditions.

C++  and C+ (Fair):

The  company has demonstrated fair overall performance and can meet its current obligations to policyholders,  but is vulnerable to unfavorable changes in underwriting or economic conditions

C  and C- (Marginal):

The  company has demonstrated marginal overall performance.  It can meet its current obligations to policyholders,  but it is very vulnerable to unfavorable changes  in underwriting or economic conditions.

D  (Very Vulnerable):

The  company has demonstrated poor overall performance.  The company can meet its obligations to policyholders, but is extremely vulnerable to unfavorable changes  in underwriting or economic conditions

 E (Under State Supervision):

The  company is under state insurance regulatory authority supervision, control or restraint, such as conservatorship  or rehabilitation, but not including liquidation. This rating may be assigned if the company is  under a cease and desist order issued by a state regulator other than from its state of domicile.

F  (In Liquidation):

The  company has been placed under an order of liquidation by a court of law, or its owners have voluntarily agreed to liquidate. Companies that voluntarily  liquidate or dissolve their charters are generally not insolvent.
Standard & Poor's: Standard and Poor's rates the claims-paying ability of  over 300 insurance organizations worldwide, and monitors public data on another 2,000 U.S. companies.

The following ratings are considered "secure" ratings by Standard  & Poor's:
AAA

Superior financial security on an absolute and relative basis.  Capacity to meet policyholder obligations is overwhelming under a variety of economic and underwriting conditions.

AA

Excellent  financial security. Capacity to meet policyholder obligations is strong under a variety of economic  and underwriting conditions.

A

 Good financial security, but capacity to meet policyholder  obligations is somewhat susceptible to adverse economic and underwriting conditions.

BBB

Adequate financial security, but capacity to meet policyholder  obligations is susceptible to adverse economic and  underwriting conditions.
The  following ratings are considered "vulnerable" ratings by Standard & Poor's:
BB

Financial  security may be adequate, but capacity to meet policyholder obligations, particularly with respect to long-term  or "long-tail" policies, is vulnerable to adverse  economic and underwriting conditions.

B

Vulnerable financial security. Currently able to meet policyholder  obligations, but capacity to meet policyholder obligations  is particularly vulnerable to adverse economic and underwriting conditions.

CCC

Extremely  vulnerable financial security. Continued capacity to meet policyholder obligations is highly questionable  unless favorable economic and underwriting conditions  prevail.

NR

Not  Rated. The insurer is not rated by Standard & Poor's

R

Regulatory action. As of the date indicated, the insurer is under supervision of insurance regulators following rehabilitation, receivership, liquidation, or any  other action that reflects regulatory concern about  the insurer's financial condition. Information on  this status is provided by the National Association of Insurance Commissioners and other regulatory bodies. Although believed to be accurate, this information is not guaranteed. The "R" rating does not apply to insurers subject only to non financial actions such as market conduct violations.

Plus (+) or Minus (-) sign

The  ratings from "AA" to "B" may be modified by the addition of a plus or minus sign to show relative  standing within the major rating categories. Standard & Poor's ratings and other assessments of creditworthiness and financial strength are not a recommendation  to purchase or discontinue any policy or contract issues by an insurer or to buy, hold or sell any security issued by an insurer. In addition, neither a rating nor an assessment is a guaranty of an insurer's financial strength.
Moody's: Moody's Ratings, founded in 1909, rates the financial strength of a variety of investment vehicles and institutions, including corporate bonds, preferred stock, short-term  debt, mutual funds and insurance companies.

The  following ratings are considered "strong" by Moody's:
Aaa

 Exceptional financial security. While the financial strength of these companies is likely to change, such changes as can be visualized are most unlikely  to impair their fundamentally strong position

Aa

Excellent  financial security, together with the Aaa group,  they constitute what are generally known as high-grade  companies. They are rated lower than Aaa companies  because long-term risks appear somewhat larger.

A

Good financial security. However, elements may be present which suggest a susceptibility to impairment sometime  in their future.

Baa

Adequate financial security. However, certain protective  elements may be lacking or may be characteristically unreliable over any great length of time.
The  following ratings are considered "weak" by Moody's:
Ba

Questionable financial security. Often the ability of these companies to meet policyholder obligations may be very moderate  and thereby not well safeguarded in the future.

B

Poor financial security. Assurance of punctual payment  of policyholder obligations over any long period of time is small.

Caa

Very poor financial security. They may be in default  on their policyholder obligations or there may be  present elements of danger with respect to punctual payment of policyholder obligations claims.

Ca

Extremely  poor financial security. Such companies are often in default on their policyholder obligations or  have other marked shortcomings

C

The  lowest rated class of insurance company; can be regarded as having extremely poor prospects of  ever offering financial security.

1, 2, 3 Modifiers for each generic rating category  from Aa to B. 1 indicates that the insurance company  ranks in the higher end of its generic rating category. The modifier 2 indicates a mid-range ranking. The modifier 3 indicates that the company  ranks in the lower end of its generic category.