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How can I assess the financial strength of an insurance company?
Five independent
agencies—A.M. Best, Fitch, Moody’s, Standard & Poor’s, and
Weiss—rate the financial strength of insurance companies. Each has its
own rating scale, its own rating standards, its own population of rated
companies, and its own distribution of companies across its scale. Each
agency uses numbers or plusses and minuses to indicate minor variations
in rating from another rating class.
The agencies disagree often enough so that you should consider a
company’s rating from two or more agencies before judging whether to
buy or keep a policy from that company. Moreover, agencies will
announce changes of ratings on any day. It’s probably prudent to check
annually on the ratings of any company you’re interested in.
Some points for using the ratings:
- Don’t rely only on what the
insurance companies say about their ratings from these agencies.
Companies are likely to highlight a higher rating from one agency and
ignore a lower one from another agency, or to select the most favorable
comments from a rating agency’s report.
- To use the ratings from more than
one independent agency, you need to understand that each agency’s
rating code is different from the others. For example, an A+ from A.M.
Best is the next-to-top rating of its 15 categories, but an A+ from
Fitch or S&P is their 5th-highest rating (out of 24 categories for
Fitch, and out of 19 categories for S&P). Moreover, Moody’s doesn’t
have an A+ rating.
For links to the five independent agencies listed above, visit our
webpage Financial Rating Companies.
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