AM Best Ratings Explained: What Insurance Company Ratings Mean

An AM Best rating is an independent opinion of an insurance company's financial strength and its ability to pay claims on its ongoing policy obligations. The Best's Financial Strength Rating scale runs from A++ at the top down to D, grouped into seven categories: Superior (A++, A+), Excellent (A, A-), Good (B++, B+), Fair (B, B-), Marginal (C++, C+), Weak (C, C-), and Poor (D). Separate non-rating designations E, F, and S flag insurers under regulatory supervision, in liquidation, or with a suspended rating.

The rating answers one narrow question: will this carrier still be solvent and paying when your claim arrives, possibly years after you bought the policy? That makes it one of the few numbers on a proposal worth checking before you look at price.

AM Best Rating (Financial Strength Rating)

An AM Best rating, formally 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 grades the company, not any specific policy, on a scale from A++ down to D.

What is an AM Best rating?

An AM Best rating is a letter grade that AM Best, a credit rating agency founded in 1899 that specializes in the insurance industry, assigns to an insurance company after evaluating its ability to meet its ongoing policy obligations. The formal product is the Best's Financial Strength Rating, and AM Best's own Guide to Best's Financial Strength Ratings defines it as an independent opinion of financial strength and claims-paying ability.

When a proposal or contract cites the AM Best rating for insurance companies on your program, this letter grade is the number being quoted. It is not a grade on customer service, claim handling speed, or price. It is a solvency opinion.

Under Best's Credit Rating Methodology, the opinion is built from four blocks: balance sheet strength, operating performance, business profile, and enterprise risk management. Balance sheet strength anchors the analysis, and the other three move the rating up or down from that anchor. AM Best is equally explicit about what the rating is not. Per the same guide, an FSR is not a recommendation to purchase, hold, or terminate any policy, and it is not investment advice or a guarantee against insolvency.

What do AM Best rating letters mean?

AM Best rating letters map to seven categories of claims-paying ability, published in AM Best's Guide to Best's Financial Strength Ratings. Superior (A++ and A+) and Excellent (A and A-) mark the carriers with the strongest ability to meet ongoing insurance obligations, and together they cover most of the standard market. Good (B++ and B+) still describes a secure insurer, one AM Best judges able to meet its obligations. The tone changes at Fair (B and B-), where the definition first mentions vulnerability.

From Fair down through Marginal (C++ and C+), Weak (C and C-), and Poor (D), every category definition includes vulnerability to adverse underwriting and economic conditions, with the wording growing harsher at each step down. The categories, not the individual letters, are the units AM Best actually defines. Here is the full scale:

Two things trip readers up. First, the plus and minus signs are notches inside a category, not categories of their own, so A- is still Excellent and B+ is still Good. Second, a handful of letters below D are not ratings at all. AM Best calls them non-rating designations:

• E: the insurer has been publicly placed into conservation or rehabilitation by court order, or regulators have acted to delay or limit policyholder payments.
• F: the insurer has been placed into liquidation after a finding of insolvency.
• S: the rating is suspended because sudden events hit the company and AM Best lacks the information to evaluate them.
• NR: the company is not rated, either never rated or previously rated and since withdrawn.

An NR is worth a phone call rather than a panic. Some small or captive insurers simply never sought a rating, while others let one lapse ahead of bad news, and the difference matters.

Is a B++ rating good?

Yes, literally. B++ and B+ sit in the category AM Best names Good, the third of seven, and the agency's definition says such insurers have a good ability to meet their ongoing insurance obligations. AM Best classifies B++ as secure, not vulnerable. A B++ carrier is not distressed, and treating every grade below A- as a failing insurer misreads the scale. The genuine caution zone starts at B and B-, the Fair category, where AM Best's own definition begins adding the phrase vulnerable to adverse underwriting and economic conditions.

The practical answer is more layered than the literal one. Much of the market prices in a higher floor: construction contracts, landlord insurance requirements, and lender agreements routinely specify carriers rated A- or better, so a B++ policy can be perfectly sound and still fail the insurance specifications on your next job.

Excess and umbrella underwriters do the same thing from the other direction, requiring rated paper beneath them before they will sit above your excess liability program. A B++ carrier can be a reasonable home for a risk nobody else wants. It is rarely the right home for a risk that has options.

What is a rating outlook?

An outlook is AM Best's signal about where the rating may go over the intermediate term, and it rides alongside the letter grade as positive, negative, or stable. A negative outlook does not lower the rating, but it tells you which direction the analysts are leaning at the next review. AM Best also flags ratings as under review, with positive, negative, or developing implications, when a sudden event such as a merger or a large reserve charge needs evaluation before the rating can be affirmed or changed.

The mechanics are laid out in AM Best's Guide to Best's Credit Ratings. Read the outlook whenever you read the rating. An A- with a negative outlook and an A- with a stable outlook are the same grade today and potentially different grades at renewal. Brokers who service accounts on thin-margin carriers check for rating actions during the policy term, not just at placement, because a mid-term downgrade below A- can trip rating requirements in loan covenants and construction contracts while the policy is still in force.

Why do AM Best ratings matter for surplus lines buyers?

The rating matters most where the safety net is thinnest. An admitted carrier participates in your state's guaranty fund, which pays covered claims up to statutory caps if the insurer fails. A surplus lines carrier does not, so if a non-admitted insurer becomes insolvent mid-claim, its own balance sheet is the only thing standing behind your loss. In the E&S market, the rating replaces that safety net. That is why careful brokers hold E&S placements to a strong rating standard, disclose the rating before binding, and put it in writing.

Eligibility rules reinforce the point without fully solving it. Under the federal Nonadmitted and Reinsurance Reform Act of 2010, a US-domiciled surplus lines insurer generally must maintain at least $15 million in capital and surplus, and non-US insurers typically appear on the NAIC Quarterly Listing of Alien Insurers. Those are solvency floors, not quality grades. The rating is the tool that separates a merely eligible carrier from a strong one, which is why your surplus lines broker should quote it as routinely as the premium.

How do you look up an insurance company's AM Best rating?

You can pull any carrier's current rating yourself in a few minutes through the rating search at ambest.com, which is free once you register for an account. The catch is knowing what to search. Insurance groups often contain a dozen separate writing companies, and they do not always share one rating, so you need the exact legal entity on your declarations page rather than the group brand name. A group-name search can surface a flagship company rated a notch above the subsidiary actually issuing your policy. Follow this sequence:

1. Find the exact writing company name

   Take the insurer's full legal name from your quote, declarations page, or certificate, not the trade name. "Acme Insurance Group" may write your policy through a subsidiary with a different rating than the flagship company.

2. Search the rating on ambest.com

   Enter the legal name in the rating search at ambest.com. Confirm the domicile state matches your paperwork so you are not reading a sister company's rating.

3. Read the full rating unit

   Note the letter grade, the outlook, and the Financial Size Category, the Roman numeral for adjusted policyholders' surplus. Per AM Best's Guide to Best's Financial Size Category, Class VII means $50 million to $100 million in surplus and Class XV means $2 billion or more, which is why contract specs often read "A- VII or better."

4. Recheck at every renewal

   Ratings move. A carrier that was A- at binding can be downgraded mid-term, so verify the rating at each renewal and whenever news breaks about the company.

Your state insurance department is the complementary check. The DOI can tell you whether the company is licensed or surplus lines eligible in your state and whether it has unusual complaint activity, which the financial rating does not measure.

This guide is for educational purposes and summarizes standard ISO policy language. Your policy's specific terms, conditions, and endorsements control. Talk to a licensed broker about your actual exposures.