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Overview

To help you better understand the various insurance rating services, as well as the definitions of
the various ratings assigned to insurance companies, here's a detailed description of the top three insurance companies rating services: A.M. Best, Standard & Poor's, and Moody's Investor Services. The information shown below, was provided by each of these respective rating services.

 

Best's Ratings

A.M. Best Co. was founded in 1899 with the purpose of performing "a constructive and objective
role in the insurance industry towards the prevention and detection of insurer insolvency." This mission led to the development of Best's Ratings. Today, A.M. Best rates the financial strength of insurance companies and the security of holding company's debt and preferred stock. More than merely passing judgment on past performance, a Best's Rating gives an indication of how that company may be expected to perform in the future.

A Best's Rating is an independent third-party evaluation that subjects all insurers to the same
rigorous criteria, providing a valuable benchmark for comparing insurers, regardless of their
country of domicile. Such a benchmark is increasingly important to an international market that
looks for a strong indication of stability in the face of widespread deregulation, mergers,
acquisitions and other dynamic factors.

For insurance companies, a Best's Rating is a strategic tool that can enhance consumer confidence in the organization's stability, as well as its attractiveness to investors. A rating also enhances an insurer's credibility with reinsurers – a valuable resource, particularly for insurers entering new markets.

Insurance professionals depend on Best's Ratings to determine the financial strength and operation of specific insurers, to evaluate prospective reinsurance accounts, to compare company
performance and financial condition, and more. A Best's Rating can influence an agent's selection of plans to market.

In recent years, ratings also have become an increasingly important factor in consumers' decisions to purchase insurance. Today's insurance consumers are well aware of how regional, political and economic instabilities can affect a marginal company. Best's Ratings provide these consumers with the information necessary for an educated buying decision.

A.M. Best currently rates more than 2,600 property/casualty and over 1,700 life/health companies,
as well as over 1,100 insurers in 65 foreign countries. Indeed, our reputation as "the insurance information source" gives added credibility to every company that receives a Best's Rating.

A.M. Best Company is committed to maintaining Best's Rating as the definitive source for
information on the financial condition and operating performance of insurance companies
worldwide.

Current Guide to Best's Ratings
(Effective March 30, 1998)

 Best's Ratings and Financial Performance Ratings (FPR)

A.M. Best assigns to insurance companies one of two types of rating opinions, a Best's Rating (A++ to F) or a Financial Performance Rating (9 to 1). The Best's Rating represents an opinion based on a comprehensive quantitative and qualitative evaluation of a company's financial strength, operating performance and market profile. The FPR represents an opinion based primarily on a quantitative evaluation of a company's financial strength and operating performance. Best's Ratings and FPRs provide an independent opinion of an insurance company's ability to meet its obligations to policyholders.

Secure Best's Ratings Vulnerable Best's Ratings
A++, A+ Superior B, B- Fair
A, A- Excellent C++, C+ Marginal
B++, B+ Very Good C, C- Weak
    D Poor
    E Under Regulatory Supervision
    F In Liquidation
    S Rating Suspended
Secure FPR Ratings Vulnerable FPR Ratings
9 Very Strong 4 Fair
8,7 Strong 3 Marginal
6,5 Good 2 Weak
    1 Poor

The rating symbols "A++", "A+", "A", "A-", "B++", and "B+" are registered certification marks of the A.M. Best Company, Inc.

Rating Modifiers

Rating Modifiers are assigned to Best's Ratings and Financial Performance Ratings to
identify companies whose rating opinions are Under Review (u) and may be subject to near-term change; or are based on a Group (g), Pooling (p) or Reinsurance (r) affiliation with other insurers.

Rating Modifiers
g - Group r - Reinsured
p - Pooled u - Under Review

Definition of Best's Ratings, FPR Ratings, and Not Rated Categories (NR) (Effective March 30, 1998)

 Secure Best's Ratings

A++ and A+ (Superior)

Assigned to companies which have, on balance, superior financial strength, operating performance and market profile when compared to the standards established by the A.M. Best Company. These companies, in our opinion, have a very strong ability to meet their ongoing obligations to policyholders.

A and A- (Excellent)

Assigned to companies which have, on balance, excellent financial strength, operating performance and market profile when compared to the standards established by the A.M. Best Company. These companies, in our opinion, have a strong ability to meet their ongoing obligations to policyholders.

B++ and B+ (Very Good)

Assigned to companies which have, on balance, very good financial strength, operating performance and market profile when compared to the standards established by the A.M.
Best Company. These companies, in our opinion, have a good ability to meet their ongoing obligations to policyholders.

Vulnerable Best's Ratings

B and B- (Fair)

Assigned to companies which have, on balance, fair financial strength, operating performance and market profile when compared to the standards established by the A.M. Best Company. These companies, in our opinion, have an ability to meet their current obligations to policyholders, but their financial strength is vulnerable to adverse changes in underwriting and economic conditions.

C++ and C+ (Marginal)

Assigned to companies which have, on balance, marginal financial strength, operating performance and market profile when compared to the standards established by the A.M. Best Company. These companies, in our opinion, have an ability to meet their current obligations to policyholders, but their financial strength is vulnerable to adverse changes in underwriting and economic conditions.

C and C- (Weak)

Assigned to companies which have, on balance, weak financial strength, operating performance and market profile when compared to the standards established by the A.M. Best Company. These companies, in our opinion, have an ability to meet their current obligations to policyholders, but their financial strength is very vulnerable to adverse changes in underwriting and economic conditions.

D (Poor)

Assigned to companies which have, on balance, poor financial strength, operating performance and market profile when compared to the standards established by the A.M. Best Company. These companies, in our opinion, may not have an ability to meet their current obligations to policyholders and their financial strength is extremely vulnerable to adverse changes in underwriting and economic conditions.

E (Under Regulatory Supervision)

Assigned to companies which have been placed by an insurance regulatory authority under a significant form of supervision, control or restraint, such as conservatorship or rehabilitation, but does not include liquidation.

F (In Liquidation)

Assigned to companies which have been placed under an order of liquidation by a court of law or whose owners have voluntarily agreed to liquidate the company.

S (Rating Suspended)

Assigned to rated companies that have experienced sudden and significant events affecting their financial position or operating performance whose rating implications cannot be evaluated due to a lack of timely or adequate information.

Secure FPR Ratings

FPR 9 (Very Strong)

Assigned to companies which have, on balance, very strong financial strength, operating performance and market profile when compared to the standards established by the A.M. Best Company. These companies, in our opinion, have a strong ability to meet their ongoing obligations to policyholders.

FPR 8 and 7 ( Strong)

Assigned to companies which have, on balance, strong financial strength, operating performance and market profile when compare to the standards established by the A.M. Best Company. These companies, in our opinion, have a good ability to meet their ongoing obligations to policyholders.

FPR 6 and 5 (Good)

Assigned to companies which have, on balance, good financial strength, operating performance and market profile when compared to the standards established by the A.M. Best Company. These companies, in our opinion, have an adequate ability to meet their ongoing obligations to policyholders.

Vulnerable FPR Ratings

FPR 4 (Fair)

Assigned to companies which have, on balance, fair financial strength, operating performance and market profile when compared to the standards established by the A.M. Best Company. These companies, in our opinion, have an ability to meet their current obligations to policyholders, but their financial strength is vulnerable to adverse changes in underwriting and economic conditions.

FPR 3 (Marginal)

Assigned to companies which have, on balance, marginal financial strength, operating performance and market profile when compared to the standards established by the A.M. Best Company. These companies, in our opinion, have an ability to meet their current obligations to policyholders, but their financial strength is vulnerable to adverse changes in underwriting and economic conditions.

FPR 2 (Weak)

Assigned to companies which have, on balance, weak financial strength, operating performance and market profile when compared to the standards established by the A.M. Best Company. These companies, in our opinion, have an ability to meet their current obligations to policyholders, but their financial strength is very vulnerable to adverse changes in underwriting and economic conditions.

FPR 1 (Poor)

Assigned to companies which have, on balance, poor financial strength, operating performance and market profile when compared to the standards established by the A.M. Best Company. These companies, in our opinion, may not have an ability to meet their current obligations to policyholders and their financial strength is extremely vulnerable to adverse changes in underwriting and economic conditions.

Not Rated Categories (NR)

NR-1 (Insufficient Data)

Assigned predominantly to small companies for which A.M. Best does not have sufficient financial information required to assign a rating opinion. The information contained in these limited reports is obtained from several sources, which include the individual companies and the National Association of Insurance Commissioners (NAIC). The data received from the NAIC, in some cases, is prior to the completion of their cross checking and validation process.

NR-2 (Insufficient Size and/or Operating Experience)

Assigned to companies that do not meet A.M. Best's minimum size and/or operating experience requirements.

NR-3 (Rating Procedure Inapplicable)

Assigned to companies that are not rated by A.M. Best, because our normal rating procedures do not apply due to their unique or unusual business features.

NR-4 (Company Request)

Assigned to companies that request that their rating not be published.

NR-5 (Not Formally Followed)

Assigned to companies that are not formally evaluated for the purposes of assigning a rating opinion.

Rating Modifiers

Rating Modifiers are assigned to Best's Ratings and Financial Performance Ratings to identify companies whose rating opinions are Under Review (u) and may be subject to near-term change; or are based on a Group (g), Pooling (p) or Reinsurance (r) affiliation with other insurers.

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Standard & Poor's
Insurer Financial Strength Rating Definitions

A Standard & Poor's Insurer Financial Strength Rating is a current opinion of the financial security characteristics of an insurance organization with respect to its ability to pay under its insurance policies and contracts in accordance with their terms. This opinion is not specific to any particular policy or contract, nor does it address the suitability of a particular policy or contract for a specific purpose or purchaser. Furthermore, the opinion does not take into account deductibles, surrender or cancellation penalties, timeliness of payment, nor the likelihood of the use of a defense such as fraud to deny claims. For organizations with cross-border or multinational operations, including those conducted by subsidiaries or branch offices, the ratings do not take into account potential that may exist for foreign exchange restrictions to prevent financial obligations from being met.

Insurer Financial Strength Ratings are based on information furnished by rated organizations or obtained by Standard & Poor's from other sources it considers reliable. Standard & Poor's does not perform an audit in connection with any rating and may on occasion rely on unaudited financial information. Ratings may be changed, suspended, or withdrawn as a result of changes in, or unavailability of such information or based on other circumstances.

Insurer Financial Strength Ratings do not refer to an organization's ability to meet nonpolicy (i.e. debt) obligations. Assignment of ratings to debt issued by insurers or to debt issues that are fully or partially supported by insurance policies, contracts, or guarantees is a separate process from the determination of Insurer Financial Strength Ratings, and follows procedures consistent with issue credit rating definitions and practices. Insurer Financial Strength Ratings are not a recommendation to purchase or discontinue any policy or contract issued by an insurer or to buy, hold, or sell any security issued by an insurer. A rating is not a guaranty of an insurer's financial strength or security.

Standard & Poor's Insurer Financial Strength Ratings
An insurer rated 'BBB' or higher is regarded as having financial security characteristics that outweigh any vulnerabilities, and is highly likely to have the ability to meet financial commitments.
AAA An insurer rated 'AAA' has EXTREMELY STRONG financial security characteristics. 'AAA' is the highest Insurer Financial Strength Rating assigned by Standard & Poor's.
AA An insurer rated 'AA' has VERY STRONG financial security characteristics, differing only slightly from those rated higher.
A An insurer rated 'A' has STRONG financial security characteristics, but is somewhat more likely to be affected by adverse business conditions than are insurers with higher ratings.
BBB An insurer rated 'BBB' has GOOD financial security characteristics, but is more likely to be affected by adverse business conditions than are higher rated insurers.
An insurer rated 'BB' or lower is regarded as having vulnerable characteristics that may outweigh its strengths. 'BB' indicates the least degree of vulnerability within the range; 'CC' the highest.
BB An insurer rated 'BB' has MARGINAL financial security characteristics. Positive attributes exist, but adverse business conditions could lead to insufficient ability to meet financial commitments.
B An insurer rated 'B' has WEAK financial security characteristics. Adverse business conditions will likely impair its ability to meet financial commitments.
CCC An insurer rated 'CCC' has VERY WEAK financial security characteristics, and is dependent on favorable business conditions to meet financial commitments.
CC An insurer rated 'CC' has EXTREMELY WEAK financial security characteristics and is likely not to meet some of its financial commitments.
R An insurer rated 'R' has experienced a REGULATORY ACTION regarding solvency. The rating does not apply to insurers subject only to nonfinancial actions such as market conduct violations.
NR An insurer designated 'NR' is NOT RATED, which implies no opinion about the insurer's financial security.
Plus (+) or minus (-) Following ratings from 'AA' to 'CCC' show relative standing within the major rating categories.
CreditWatch - highlights the potential direction of a rating, focusing on identifiable events and short-term trends that cause ratings to be placed under special surveillance by Standard & Poor's. The events may include mergers, recapitalizations, voter referenda, regulatory actions, or anticipated operating developments. Ratings appear on CreditWatch when such an event or a deviation from an expected trend occurs and additional information is needed to evaluate the rating. A listing, however, does not mean a rating change is inevitable, and whenever possible, a range of alternative ratings will be shown. CreditWatch is not intended to include all ratings under review, and rating changes may occur without the ratings having first appeared on CreditWatch. The "positive" designation means that a rating may be raised; "negative" means that a rating may be lowered; "developing" means that a rating may be raised, lowered or affirmed.

'pi' Ratings, denoted with a 'pi' subscript, are Insurer Financial Strength Ratings based on an analysis of published financial information and additional information in the public domain. They do not reflect in-depth meetings with an insurer's management and are therefore based on less comprehensive information than ratings without a 'pi' subscript. 'pi' ratings are reviewed annually based on a new year's financial statements, but may be reviewed on an interim basis if a major event that may affect an insurer's financial security occurs. 'pi' ratings are not modified with '+' or '-' designations, nor are they subject to potential CreditWatch listings.

National Scale Ratings, denoted with a prefix such as 'mx' (Mexico) or 'ra' (Argentina), assess an insurer's financial security relative to other insurers in its home market. For more information, refer to the separate definitions for national scale ratings.

Quantitative Ratings, denoted with a 'q' subscript, were discontinued in 1997. The ratings were based solely on quantitative analysis of publicly available financial data.

Standard & Poor's Short-Term Insurer Financial Strength Ratings
Short-Term Insurer Financial Strength Ratings reflect the insurer's creditworthiness over a short-term time horizon.
A-1 An insurer rated 'A-1' has a STRONG ability to meet its financial commitments on short-term policy obligations. It is rated in the highest category by Standard & Poor's. Within this category, certain insurers are designated with a plus sign (+). This indicates that the insurer's ability to meet its financial commitments on short-term policy obligations is EXTREMELY STRONG.
A-2 An insurer rated 'A-2' has a GOOD ability to meet its financial commitments on short-term policy obligations. However, it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than insurers in the highest rating category.
A-3 An insurer rated 'A-3' has an ADEQUATE ability to meet its financial commitments on short-term policy obligations. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened ability of the insurer to meet its financial obligations.
B An insurer rated 'B' is regarded as VULNERABLE and has significant speculative characteristics. The insurer currently has the ability to meet its financial commitments on short-term policy obligations; however, it faces major ongoing uncertainties which could lead to the insurer's inadequate ability to meet
its financial obligations.
C An insurer rated 'C' is regarded as CURRENTLY VULNERABLE to nonpayment and is dependent upon favorable business, financial, and economic conditions for it to meet its financial commitments on short-term policy obligations.
R See definition of "R" under Long-term Ratings.

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John Moody (1868 - 1958) laid the foundations for Moody's Investors Service in 1900, when
he published  Moody's Manual of Industrial and Corporation Securities.

In 1909, Moody introduced the first bond ratings as part of Moody's Analyses of Railroad Investments. He used the Aaa-through-C symbols that have since become a world standard to rate some 1,500 individual securities of over 200 US railroads. From the very beginning, Moody assigned independent rating opinions to help his investor readers manage credit risk. Then -- as now -- Moody's ratings were based on public information and assigned without the request of issuers.

Not surprisingly, his innovation raised more than a few eyebrows among the financiers of Wall Street. Half a century later Moody recalled:

In the Spring of 1909 I brought out the first edition of a new type of Railroad Manual which attempted to analyze railroad reports and rate their bond issues. While it raised a storm of opposition, not to mention ridicule from some quarters, it took hold with dealers and investment houses... and long before 1914 it was a recognized authority and "Moody's Ratings" had become an important factor in the bond trading and bond selling field. Moody's Investors Service was incorporated in 1914, the year Moody began expanding rating coverage to bonds issued by US cities and other municipalities. By 1924, Moody's ratings covered nearly 100 percent of the US bond market.

Moody's continued to publish and monitor ratings during the Great Depression, when bond default rates skyrocketed but few bonds highly-rated by Moody's missed payments. In the 1970s, Moody's ratings were further extended to the commercial paper market and to bank deposits. Also in the 1970s, the major rating agencies including Moody's began the practice
of charging issuers as well as investors for rating services. The rationale for this change was, and is, that issuers should pay for the substantial value objective ratings provide in terms of market access. In addition, it was recognized that the increasing scope and complexity of the capital markets demanded staffing at higher levels of compensation than could be received from publication subscriptions alone.

Moody's Insurance Financial Strength Ratings

Moody's Financial Strength Rating Key
Aaa - Exceptional Aa - Excellent A - Good Baa - Adequate
Ba - Questionable B - Poor Caa - Very Poor Ca - Extremely Poor C - Lowest
Watchlist Definitions
UPG - On Review for Possible Upgrade DNG - On Review for Possible Downgrade UNC - Direction Uncertain

Current as of Feb 26, 1999, 06:03 EST

 

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For More Information Contact:

Henry Best Insurance Services
25820 Tennyson Lane, Stevenson Ranch, CA 91381
Tel: (818) 613-5380
FAX: (661) 284-3520

email: info@yourinsurancestore.com

Send E-mail to hbest@yourinsurancestore.com with questions or comments about this website.

Copyright 1998-2003 Henry Best Insurance Services
Last modified:  November 11, 2003