Insurance Company Ratings | How They Can Help You Shop

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When you buy insurance, you hope you’ll never need it. But what would happen if you did need to file a claim? How would your insurance company perform?

Insurance company ratings help us answer this question. Several independent rating agencies take a close look at insurance companies and tell us what they find.

These rating agencies report their findings through grades which resemble grades in school. But it’s not always as simple as ‘A’ is top-notch and ‘F’ is a failure.

What Do Insurance Company Ratings Tell Us?

One thing to remember about insurance company ratings: They reflect the financial strength of insurance companies but not much else.

Company ratings tell you very little about customer satisfaction or whether the company’s policy options include the specific product you need. For this kind of information, I’d recommend reading online company reviews and checking TrustPilot or ConsumersAdvocate.

So when you learn an insurance company has an A++ rating from A.M. Best — which is the highest financial stability rating A.M. Best can give — that grade reflects only the company’s financial stability.

Don’t get me wrong. This is great information to have. A top-grade means the company has:

  • A Solid Balance Sheet: The company has enough money coming in from customers’ premiums to cover its financial obligations, such as paying claims.
  • Solid Money Management: The company invests your premium dollars wisely to improve its balance sheet even more.
  • Policy Diversity: The company doesn’t expose itself to too many similar policies in one insurance market that could generate claims all at once — too many homeowners policies in hurricane-prone states, for example.

You want an insurance company with a stable future, and a top grade from A.M. Best and the other credit rating agencies points to stability for decades to come.

How Do Financial Strength Ratings Work?

Ratings agencies such as A.M. Best, Moody’s, and Fitch Ratings take an inside look within the offices of insurance companies. They analyze the books and talk to the executives. They do things regular insurance shoppers like you and I can’t do.

That’s why I pay attention when an insurance company makes a top-notch grade.

The top-grade doesn’t mean a company is infallible and will definitely be solid as a rock for decades to come. It just means you can expect this “best company” to have a solid financial foundation for years into the future.

So let’s take a closer look at who’s doing these credit ratings and how they measure the financial health of insurance companies.

The Five Ratings Agencies Issuing Grades

I’ll mention A.M. Best a lot because this rating agency specializes in insurance companies. Most of the other agencies report on all sorts of financial products — not just insurance.

But as with any other investigation, it’s smart to consider several sources and not just one.

Here are the five agencies I pay attention to:

  1. A.M. Best (insurance specific)
  2. Demotech (insurance specific)
  3. Moody’s
  4. Fitch Ratings
  5. Standard & Poor’s

Grading Scales of Five Financial Strength Ratings Agencies

For the most part, the financial strength ratings agencies’ grades work like grades in school. An ‘A’ is better than a ‘B’ and so on.

But when you’re using these grades to measure the quality of your insurance coverage, you should be aware of the nuances built into different credit agencies’ grading scales.

Here’s how they work:

A.M. Best

A.M. Best 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.

  • Top grade: A++
  • Bottom grade: F
  • Number of grades: 15
  • Grading scale: A++, A+, A, A-, B++, B+, B, B-, C++, C+, C, C-, D, E, F
A.M. Best Financial Strength Rating Scale
Category Rating Description
Secure Superior A+, A++ Superior ability to meet their ongoing insurance obligations.
Excellent A, A- Excellent ability to meet their ongoing insurance obligations.
Good B+, B++ Good ability to meet their ongoing insurance obligations.
Vulnerable Fair B, B- Fair ability to meet their ongoing insurance obligations; financial strength is very vulnerable to adverse changes in underwriting and economic conditions.
Marginal C+, C++ Marginal ability to meet their ongoing insurance obligations; financial strength is very vulnerable to adverse changes in underwriting and economic conditions.
Weak C, C- Weak ability to meet their ongoing insurance obligations; financial strength is very vulnerable to adverse changes in underwriting and economic conditions.
Poor D Poor ability to meet their ongoing insurance obligations; financial strength is very vulnerable to adverse changes in underwriting and economic conditions.
State Supervision E Regulatory action has been taken against insurer to delay or limit policyholder payments.
Under Liquidation F Insurer has been placed into liquidation via a court order.

Demotech

Demotech Financial Stability Rating® (FSR) summarizes their opinion as to the relative ability of an insurer to survive a downturn in general economic conditions as well as a downturn in the insurance underwriting cycle.

  • Top grade: A”
  • Bottom grade: L
  • Number of grades: 6
  • Grading scale: A”, A’, A, S, M, L
Demotech Financial Stability Rating Scale
Category Rating Description
Unsurpassed A” 100% of all insurers receiving an A Double Prime FSR are expected to have positive surplus regardless of severity of a general economic downturn.
Unsurpassed A’ 99% of all insurers receiving an A Prime FSR are expected to have positive surplus regardless of severity of a general economic downturn.
Exceptional A 97% of all insurers receiving an A FSR are expected to have positive surplus regardless of severity of a general economic downturn.
Substantial S 95% of all insurers receiving an S FSR are expected to have positive surplus regardless of severity of a general economic downturn.
Moderate M 90% of all insurers receiving an M FSR are expected to have positive surplus regardless of severity of a general economic downturn.
Licensed L Licensed by State regulatory authorities; expected to have below average ability to withstand a general economic downturn.

Moody’s

Moody’s credit ratings are forward-looking opinions of the relative credit risks of financial obligations for a given entity. They define credit risk as the risk that an entity may not meet its contractual financial obligations as they come due and any estimated financial loss in the event of default or impairment.

  • Top grade: Aaa
  • Bottom grade: C
  • Number of grades: 21
  • Grading scale: Aaa, Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2, Baa3, Ba1, Ba2, Ba3, B1, B2, B3, Caa1, Caa2, Caa3, C
Moody’s Credit Rating Scale
Rating Credit Quality Credit Risk
Safe Aaa Highest Lowest
Aa (Aa3, Aa2, Aa1) High Very low
A (A3, A2, A1) Upper-Medium Low
Baa (Baa3, Baa2, Baa1) Medium Moderate
Risky Ba (Ba3, Ba2, Ba1) Speculative Substantial
B (B3, B2, B1) Speculative High
Caa (Caa3, Caa2, Caa1) Speculative Very High
Junk Ca Highly Speculative Likely defaulted w/ some prospect of recovery
C Lowest Typically defaulted w/ little prospect of recovery

Note: Moody’s appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks on the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking on the lower end of that generic rating category

Fitch’s Ratings

Fitch is one of the top credit ratings companies in the world. Their Issuer Default Ratings are used as a guide for investors to help determine whether an investment is likely to default or provide a positive yield.

  • Top grade: AAA
  • Bottom grade: D
  • Number of grades: 23
  • Grading scale: AAA, AA+, AA, AA-, A+, A, A-, BBB+, BBB, BBB-, BB+, BB, BB-, B+, B, B-, CCC+, CCC, CCC-, CC, C, RD, D
Fitch Credit Rating Scale
Rating Credit Quality Credit Risk
Safe AAA Highest Lowest
AA (AA-, AA, AA+) Very High Very low
A (A-, A, A+) High Low
BBB (BBB-, BBB, BBB+) Good Low
Risky BB (BB-, BB, BB+) Speculative Elevated
B (B-, B, B+) Highly Speculative High
CCC (CCC-, CCC, CCC+) Poor Substantial
CC Very Poor Very High
Junk C Near Default Default in process
RD Restricted Default Has defaulted, but not in bankruptcy
D Default Bankruptcy/liquidation in process

Note: Fitch appends plus and minus signs to each generic rating classification from AA through CCC. The modifier plus (+) indicates that the obligation ranks on the higher end of its generic rating category; the modifier minus (-) indicates a ranking on the lower end of that generic rating category

Standard & Poor’s

S&P credit ratings focus on the insurer’s capacity and willingness over the long-term to meet all of its financial commitments as they come due.

  • Top grade: AAA
  • Bottom grade: D
  • Number of grades: 23
  • Grading scale: AAA, AA+, AA, AA-, A+, A, A-, BBB+, BBB, BBB-, BB+, BB, BB-, B+, B, B-, CCC+, CCC, CCC-, CC, C, SD, D
S&P Credit Rating Scale
Rating Credit Quality Credit Risk
Safe AAA Highest Lowest
AA (AA-, AA, AA+) Very High Very low
A (A-, A, A+) High Low
BBB (BBB-, BBB, BBB+) Good Moderate
Risky BB (BB-, BB, BB+) Speculative Elevated
B (B-, B, B+) Speculative High
CCC (CCC-, CCC, CCC+) Poor Very High
Junk CC Very Poor Near Default
SD Selective Default Has defaulted, but not in bankruptcy
D Default Defaulted, Bankruptcy/liquidation in process

Note: S&P appends plus and minus signs to each generic rating classification from AA through CCC. The modifier plus (+) indicates that the obligation ranks on the higher end of its generic rating category; the modifier minus (-) indicates a ranking on the lower end of that generic rating category

What Insurance Ratings Mean When You’re Shopping

Take a close look at the grading scales above, and you’ll notice a lot of grades include the letter A. As a result, a lot of insurance companies can claim ‘A’ ratings.

Take Fitch Rating’s grading scale, for example. The top seven grades — almost a third of the possible grades from Fitch — include the letter A. The same is true for Moody’s.

So as you shop and compare insurance providers, check back on this page to find out where, exactly, a company’s rating falls on a credit rating agency’s scale.

Or just stick with A.M. Best, which specializes in insurance ratings and has the simplest grading scale.

Insurance Companies With the Highest Financial Ratings

I’ll focus on A.M. Best in this section because A.M. Best ratings serve as a standard for insurance carriers — and because this agency’s grading scale most resembles the ‘A’ through ‘F’ system that we’re used to.

Top-Rated Auto Insurance Companies

A.M. Best rates the following companies A++ — it’s best grade:

  • GEICO: A++
  • State Farm: A++
  • Travelers: A++
  • USAA: A++

Other highly rated auto insurance companies:

  • Allstate: A+
  • Amica: A+
  • Erie: A+
  • Progressive: A+
  • Hartford: A+
  • Farmers: A
  • Liberty Mutual: A
  • Nationwide: A
  • Safeco: A

Continue Reading:

Top-Rated Home Insurance Companies

A.M. Best measures auto and homeowners insurance together, so this list will look a lot like the one above.

These companies have A++ ratings from A.M. Best:

  • GEICO: A++
  • State Farm: A++
  • Travelers: A++
  • USAA: A++

Other highly rated auto insurance companies:

  • Allstate: A+
  • Amica: A+
  • Erie: A+
  • Progressive: A+
  • Farmers: A
  • Liberty Mutual: A
  • Nationwide: A

Lemonade, one of my favorite home insurance and renters insurance companies, hasn’t been graded by A.M. Best, but it gets a strong financial strength rating from Demotech, another insurance-specific credit rating agency.

Continue Reading:

Top-Rated Life Insurance Companies

Life insurance ratings are especially important since you wouldn’t be alive if your beneficiary had to file a claim, and the life insurance payout could make a huge difference as your loved ones rebuilt their lives.

Top-rated (A++) life insurance companies include:

  • MassMutual: A++
  • Haven Life (MassMutual): A++
  • New York Life: A++
  • Northwestern Mutual: A++
  • Banner Life: A++
  • Protective: A++
  • Guardian Life: A++

Other high-rated life insurance companies include:

  • Principal: A+
  • Pacific Life: A+
  • Prudential: A+
  • Lincoln Financial: A+
  • Aflac: A+
  • Mutual of Omaha: A+
  • John Hancock: A+
  • Globe Life: A+
  • State Farm: A
  • Gerber Life: A
  • Liberty Mutual: A
  • AIG: A
  • Brighthouse (MetLife): A
  • SBLI: A

Continue Reading:

Financial Strength Ratings Aren’t Everything

Now when a company claims it has an ‘A’ rating you’ll know what that means. You can look up the ratings agency and see exactly where that ‘A’ falls within its financial strength ratings.

But finding an A (or A++ or AAA or Aa3) rated company doesn’t mean you’re guaranteed the best company or the best insurance product for your specific needs. It just means the company should be around for a while because of its solid financial strength rating.

So choose a highly rated company, but also make sure your company has:

  • The Right Type of Insurance: Not every insurer offers every kind of insurance. And even within the right type of insurance, you may want specific customizations not all companies offer. You may want no-exam life insurance or homeowners coverage for a vacation home, for example. Make sure a provider can meet your specific needs.
  • Good Customer Service: Whether you can get help if you need it matters. Some companies require you to work through an authorized agent. If you’d rather buy coverage directly online or over the phone, you’ll need a company with this option. We’ll look at how to measure this below.
  • Online Tools If You Need Them: The insurance industry tends to change slowly. More and more companies let you manage your policy online — especially auto and life policies — but many life insurance companies still require you to mail paperwork or even visit an agent.
  • A Claims Process You Can Use: How would you file a claim when you needed to? Some of the most modern home insurance companies like Lemonade let you file a claim on your smartphone. Some insurance providers still require paper forms.

How To Measure Insurance Customer Satisfaction

As shoppers, we like grades because they clarify the mysteries built into shopping for abstract financial products. That’s one reason almost every insurer mentions its Standard and Poor’s, A.M. Best, Moody’s, or Fitch rating.

But, again, these grades tell us about an insurer’s financial strength and not its customer satisfaction record. The good news is that you can find grades for customer satisfaction, too, from these organizations:

  • NAIC: The National Association of Insurance Commissioners measures customer complaints. An NAIC index of 1.0 means an insurance company gets the median number of complaints within the insurance industry. A rating higher than 1.0 means the company gets more than the median number of complaints.
  • J.D. Power: This well-known organization does a thorough study of the insurance industry every year to measure customer satisfaction. J.D. Power uses a 1,000-point scale.
  • BBB: Better Business Bureau grades reflect the way a company interacts with customers who file complaints. An A+ rated company performs best; not all companies are rated with the BBB.

Customer Satisfaction Ratings vs. Online Reviews

You can find online reviews on sites like TrustPilot and ConsumersAdvocate — and even on platforms like Facebook and Google. But be careful with this information because it skews negative and doesn’t always represent reality.

For example, a customer who had a claim denied may leave a scathing review. The reviewer may even call the company names and warn you to never do business with the company no matter what.

This online reviewer will not mention having let the policy lapse or having bought the policy without reading its fine print to learn about common exclusions — which led to the denial.

I’m not saying online reviews have no value. But you should look for trends and not pay too much attention to isolated problems. When you see the same problem happening multiple times across various reviews, I’d start to pay attention.

The value of customer satisfaction ratings from places like NAIC and J.D. Power is these organizations look into complaints to make sure they’re legit. They do the filtering for you.

Who Measures Up With Customer Satisfaction?

Let’s see which companies make the grade for customer satisfaction. Often, these companies also earn the best financial strength ratings.

J.D. Power’s Top-Rated Insurers

Most Points Possible: 1,000:

  • USAA: 900
  • GEICO: 867
  • Nationwide: 862
  • State Farm: 860
  • Allstate: 858
  • Liberty Mutual: 853
  • Farmers: 849
  • Progressive: 848
  • Travelers: 847

The National Insurance Commissioners Association (NAIC) Complaint Ratio

On this scale, 1.0 represents the median number of complaints in the insurance industry.

A company with a ratio below 1.0 gets fewer complaints than the industry median.

A company with a ratio above 1.0 gets more complaints compared to the median number.

Here are how some leading insurers stack up in the most recent NAIC index:

  • Haven Life: 0.04
  • MassMutual: 0.08
  • Banner Life: 0.16
  • New York Life: 0.20
  • Lincoln Financial: 0.59
  • Brighthouse (MetLife): 0.44
  • Nationwide: 0.64
  • USAA: 0.74
  • Farmers: 0.79
  • MEDIAN NUMBER OF COMPLAINTS: 1.0
  • Allstate (Esurance): 1.03
  • Safeco: 1.10
  • Progressive: 1.11
  • GEICO: 1.35
  • State Farm: 1.34
  • Liberty Mutual: 1.56
  • The Hartford: 1.65
  • Travelers: 2.75

Did you notice the best performers (lowest ratios) come from life insurance providers? Since life insurance policies result in fewer claims, they generate fewer complaints than car insurance companies.

With auto insurance, policyholders have a lot more opportunities to file claims, which means they have more chances to have a negative experience.

Of course, many insurance carriers offer both life and auto/home insurance: USAA and State Farm, for example.

Who Needs Insurance Anyway?

Insurance protects your financial freedom from unexpected turmoil.

  • Home Insurance: You should always have homeowners insurance if you own a home, because your policy could provide the money to replace your home after a fire or serious storm damage.
  • Renters Insurance: Renters coverage can protect your belongings because your landlord’s coverage won’t help after a fire, water damage, or storm.
  • Auto Insurance: Your state requires car insurance if you take to the road, and your auto insurance policy should protect your investment in your car, too. Your policy should also shield you from liability if you cause a wreck.
  • Life Insurance: Life insurance policies are a no-brainer when people you love depend on you financially;
  • Long-Term Disability: the same is true for long-term disability insurance policies, which could replace a big chunk of your income if you were injured.
  • Health Insurance: It’s not just Covid-19. All sorts of health conditions could erode your financial security if you needed a long hospitalization. Check your local insurance market if you don’t have employer-provided coverage.

You get the idea. You buy insurance coverage just in case the worst happens, and this makes insurance unique: What else do you buy hoping you’ll never need to use it?

If you ever do need to go through your insurance company’s claims process, you’ll be glad you bought a policy with top-notch financial strength and strong customer satisfaction ratings.

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