How Do I Rate? Not My Best? A Bit Moody?

All right, that was a bit much, that headline.  Sorry!

But really, how do you know for sure if your insurance carrier is okay?  Obviously, recommendations from family, friends and co-workers are a good start.  So is keeping up with the news.  But getting decent service from a trusted local  agent or nearby network is not exactly the same thing as researching the financial strength of a corporation.  Why is this important?  Because we expect our claims to be paid, in full, in a timely fashion.

This is where independent rating agencies come in.  These agencies, and we  list the recommended ones below, use a variety of methodologies to determine the relative creditworthiness of companies.  These are opinions, based on expert analysis of balance sheets, business profiles, operating performances, details of debt securities and so on.  The ratings are not recommendations to buy or sell anything and are not a warranty, nor do they address product suitability.  Again, they are independent opinions regarding an insurance company’s financial strength and ability to satisfy its ongoing policy and contract obligations.

There are five or six recognized insurance ratings companies, and we strongly suggest that you check your insurance company’s ratings from at least two of these agencies.  There is enough disagreement among the rating agencies to make it worth your while to contrast and compare findings.  Some other thoughts:

  • Insurance companies tend to highlight a strong rating from one agency, while ignoring a weaker one from another.  With that in mind, do not rely solely on a carrier’s statement about their ratings.  Again, compare and contrast.
  • Each agency has its own rating system and language.  Plus and minus signs, or numbers, are used within the ratings to show levels and variations within those classes, but be careful.  Moody’s doesn’t have an ‘A+’, for example, while an ‘A+’ from A.M. Best is one from the top in 15 categories.  But Standard & Poors  and Fitch use an ‘A+’ as their 5th highest rating.  If you simply divide the tables into ‘secure’ and ‘vulnerable’ it might make more sense.  Apples to apples; pears to pears.
Here goes:
  • A.M. Best Company: Understandable ratings – decent online search features. A++ and A+ are ‘superior’, A and A- are ‘excellent’, down to B and Lower as ‘vulnerable’.  Click on their name, above, to get to the site. 
  • Standard & Poors: Followed closely by many financial analysts.  AAA is ‘extremely strong’; BBB  is ‘good’; down to BB and lower are ‘vulnerable’.  Again, click for site.
  • Moody’s Investor Service: Familiar to many small investors.  Aaa is ‘exceptional’; A1-3 are ‘good’; Ba1 and lower are ‘vulnerable’.  Click for site.
  • Duff & Phelps: Recognized as one of the top ratings firms.  Click for site.
  • The Street: A+ is ‘excellent’; the B’s are all ‘good’ and D+ and lower are ‘vulnerable’.  Their ratings are free on their website – click above.
  • Fitch: AAA is ‘excellent’; BBB is ‘good’; BB and lower are ‘vulnerable’.  Click for site.
As a rule, it is free to use these sites, though you will need to register.

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