Written by Justin Goodman, CIC, CISC, CLCS, CEO and Co-Founder, Total CSR
Published: August 3, 2026 · Last reviewed: August 3, 2026
In plain language: A.M. Best Company Rating tells you how likely an insurance company is to have the money to pay insurance claims, now and in the future. It works like a credit score for insurance providers, letting agents and clients judge a carrier’s financial health before trusting it with an insurance policy.
Technical definition: A.M. Best Company Rating is an independent opinion of an insurer’s ability to meet ongoing insurance obligations and contract obligations, based on balance sheet strength, operating performance, business profile, and enterprise risk management. AM best ratings range from A++ (Superior) to D (Poor), with F reserved for insurance carriers in liquidation.
A.M. Best Company Rating at a Glance
| Attribute | Detail |
|---|---|
| Also known as | Best’s Rating, Financial Strength Rating (FSR) |
| Category | Insurer financial strength benchmark |
| Lines of business | Commercial Lines, Personal Lines, Surplus Lines |
| Industries most affected | Construction, Habitational, Real Estate, Manufacturing, Trucking |
| Who bears the risk | Policyholders and agents placing coverage with unrated or low-rated carriers |
| Common solution | Requiring a minimum A.M. Best rating (often A- or better) in contracts and lender requirements |
| Also interacts with | Surplus lines placements, additional insured requirements, certificate of insurance review |
Key Takeaways
- A.M. Best Company Rating is an independent assessment of an insurance carrier’s financial strength and ability to pay claims.
- Agencies rely on the am best rating to vet carriers before binding coverage and to satisfy contract or lender requirements that specify a minimum rating.
- A common misunderstanding is treating the rating as a guarantee of claim payment rather than a snapshot of financial condition that can change.
- A quick win is documenting the carrier’s rating at binding and again at renewal, since downgrades can trigger contractual defaults for insureds.
On This Page
- What Is A.M. Best Company Rating in Insurance?
- How Does A.M. Best Company Rating Work?
- Real Claim Examples Involving A.M. Best Company Rating
- A.M. Best Company Rating vs. Financial Size Category: What Is the Difference?
- What Are the Most Common Mistakes With A.M. Best Company Rating?
- How to Explain A.M. Best Company Rating to a Client
- Frequently Asked Questions About A.M. Best Company Rating
- Related Insurance Terms
- Sources and References
- About the Author
What Is A.M. Best Company Rating in Insurance?
A.M. Best Company Rating is a financial strength grade assigned by A.M. Best, the oldest and most widely used credit rating agency focused exclusively on the insurance industry. Founded in 1899 by Alfred M. Best, this privately held company based in Oldwick New Jersey has become the gold standard for evaluating insurance companies and reinsurance companies. The rating exists because insurance is a promise to pay in the future, sometimes decades after a policy is written, and buyers need an independent way to judge whether a carrier will still be solvent when a claim comes due. Unlike general credit rating agencies such as Standard & Poor’s, Fitch Ratings, and Moody’s Ratings, A.M. Best evaluates insurers specifically on reserve adequacy, reinsurance quality, and underwriting discipline.
The doctrine behind the rating traces to state insurance regulation, which requires carriers to maintain adequate reserves and surplus but does not itself certify ongoing financial strength to consumers or agents in real time. A.M. Best fills that gap. A general contractor bidding on a $50 million public project, for example, may be contractually required to carry general liability coverage with an insurer rated A- VII or better. If the contractor’s carrier is rated B++, the general contractor’s risk manager can reject the certificate of insurance and require the subcontractor to rebind with an admitted, higher-rated carrier before work begins.
Independent agencies use the rating as a first-pass filter when selecting markets, particularly for surplus lines placements where the carrier is not backed by a state guaranty fund. A carrier’s rating can also change year to year, which means a policy bound with an A-rated carrier at inception can renew with a downgraded carrier, creating exposure the agency must catch and communicate. As a designated NRSRO (Nationally Recognized Statistical Rating Organization), A.M. Best also provides issuer credit ratings, evaluates debt instruments, financial instruments, and securitization products across the financial services sector.
How Does A.M. Best Company Rating Work?
- The evaluation. A.M. Best analysts review the insurer’s balance sheet strength, operating performance, business profile, and enterprise risk management using financial statements, actuarial data, and management interviews. This rating system incorporates both quantitative metrics and qualitative evaluations of creditworthiness to assess the insurer’s ability to meet financial obligations.
- The rating assignment. A.M. Best assigns a letter grade using an alphabetical scale from A++ down to D, plus a Financial Size Category (FSC) based on policyholder surplus, and publishes both publicly through insurance reports and insurance publications. Secure ratings (A++ through A-) indicate excellent financial strength, while vulnerable ratings (B++ and below) signal increasing risk.
- The market check. Agencies and underwriters reference the published rating when selecting carriers, and many contracts, leases, and loan agreements specify a minimum acceptable rating on the rating scale.
- The ongoing monitoring. A.M. Best reviews ratings at least annually and can place a carrier under review modifier with developing implications or positive implications, or issue a rating downgrade mid-term if financial performance deteriorates by multiple rating notches.
- The renewal check. Agencies re-verify the carrier’s current rating at each renewal, since a downgrade after binding can trigger a certificate holder’s contractual right to demand replacement coverage.
Real Claim Examples Involving A.M. Best Company Rating
Subcontractor’s carrier downgraded mid-project
A framing subcontractor bound general liability coverage with a carrier rated A- at the start of a multi-year apartment build. Midway through construction, A.M. Best downgraded the carrier to B+ following weak reserve development on prior-year claims. The general contractor’s prime contract required subcontractors to maintain A- or better coverage, so the general contractor issued a default notice and required the subcontractor to replace the policy before continuing on site, delaying the project by three weeks.
Surplus lines carrier insolvency after a hurricane
A coastal habitational property owner placed windstorm coverage through a surplus lines carrier rated B++ because no admitted market would write the risk. After a major hurricane produced catastrophic losses across the carrier’s book, A.M. Best downgraded the insurer to C and the carrier was later placed into receivership. Because the policy was non-admitted, the claim was not backed by the state guaranty fund, and the property owner recovered only a fraction of the loss through the liquidation estate.
Lender-required rating clause enforced at loan closing
A commercial real estate borrower’s loan agreement required property insurance from a carrier rated A- VII or higher. The borrower’s agent placed coverage with a carrier rated A- VI, one financial size category below what the lender’s boilerplate technically allowed under a stricter internal policy. The lender’s insurance review flagged the shortfall before closing, and the agency had to rebind with a qualifying carrier to avoid delaying the transaction.
A.M. Best Company Rating vs. Financial Size Category: What Is the Difference?
A.M. Best Company Rating measures an insurer’s ability to meet its financial obligations, while Financial Size Category (FSC) measures the sheer size of the carrier’s policyholder surplus. Both are published together by A.M. Best but answer different questions, and confusing the two is a common source of contract compliance errors.
| Comparison area | A.M. Best Company Rating | Financial Size Category |
|---|---|---|
| Primary use case | Judging claims-paying ability and financial strength | Judging the carrier’s capital base and capacity |
| Coverage / concept type | Letter grade (A++ to D, plus F for liquidation) | Roman numeral class (I through XV) based on surplus |
| Typical exclusions | Does not measure carrier size or capacity | Does not measure financial stability or claims practices |
| Who is most affected by errors | Insureds relying on financial strength for large claims | Insureds needing capacity for high-limit or catastrophic risk |
| Common mistakes | Assuming a high letter grade means unlimited capacity | Assuming a large FSC means the carrier is financially sound |
What Are the Most Common Mistakes With A.M. Best Company Rating?
- Agencies bind coverage without checking the current published am best ratings, relying on stale information from a prior renewal or a carrier’s marketing materials.
- Producers assume a rating is permanent, missing mid-term downgrades that can breach contractual insurance requirements in construction or lease agreements.
- CSRs confuse the letter rating with the Financial Size Category, telling a client a carrier is “highly rated” when only the surplus class is large.
- Agencies fail to document the rating at binding, leaving no record to defend against an E&O claim if a carrier later becomes insolvent.
- Certificate of insurance reviewers overlook rating requirements buried in construction contracts, exposing the agency to liability if a subcontractor’s carrier does not qualify.
- Agencies place surplus lines business without disclosing to the client that non-admitted carriers are not backed by the state guaranty fund regardless of their A.M. Best rating.
How to Explain A.M. Best Company Rating to a Client
Explaining A.M. Best Company Rating to a personal lines client
The A.M. Best rating is like a credit score, but for your insurance company instead of for you—similar to how the Better Business Bureau rates businesses for customer satisfaction. It tells you how financially strong the carrier is and how likely they are to pay your claim without trouble, even in a bad year with lots of storms or wildfires. Your homeowners insurance policy is with a company rated in the A range, which is considered financially strong by independent analysts.
Explaining A.M. Best Company Rating to a small business owner
Before we place your coverage, we check the insurance company’s A.M. Best rating to confirm they have the financial strength to pay claims, including big ones. Some of your contracts, especially with general contractors or landlords, may require a minimum rating like A- or better, and we build that into how we shop your renewal. If a carrier ever gets downgraded, we will flag it so you are not caught off guard.
Explaining A.M. Best Company Rating to a CFO or risk manager
A.M. Best assigns a Financial Strength Rating and a Financial Size Category to every carrier we consider, and we track both against your contractual and lender insurance requirements at every renewal. Under the leadership of Arthur Snyder III and other executives, A.M. Best has maintained rigorous standards for evaluating large insurance companies and smaller regional carriers alike. We recommend setting a floor, typically A- VII, for all placements including subcontractor and vendor certificates, since a rating downgrade mid-term can trigger default clauses in your master agreements. We can also build a rating monitoring cadence into your program so a downgrade is caught before it becomes a compliance gap, and we review the complaint index and other customer satisfaction metrics when available.
Frequently Asked Questions About A.M. Best Company Rating
What does an A.M. Best rating of A- mean?
An A- rating means A.M. Best considers the insurer to have excellent ability to meet its ongoing insurance obligations, placing it in the second-highest tier below A++ and A+. Many contracts and lenders treat A- as the practical minimum acceptable rating for admitted commercial carriers. It reflects a snapshot in time and can change at the next review cycle.
Can an insurance company lose its A.M. Best rating?
An insurance company can be downgraded, placed under review with negative implications, or have its rating withdrawn if it stops reporting financial data or exits the market. A.M. Best reviews ratings at least annually and can act mid-cycle if a carrier’s financial condition changes materially. A downgrade does not automatically cancel existing policies, but it can trigger contractual replacement requirements for the insured.
Is a higher A.M. Best rating always better for a client?
A higher rating generally indicates stronger claims-paying ability, but the right choice also depends on price, coverage terms, and whether the carrier specializes in the client’s industry. A B++ carrier with strong construction-specific underwriting may still be a reasonable fit for a lower-risk account, especially if no contract mandates a higher rating. Agencies should balance rating strength against coverage fit rather than defaulting to the highest-rated option automatically.
Do surplus lines carriers have A.M. Best ratings?
Most reputable surplus lines carriers carry an A.M. Best rating, and agencies should verify it before placing non-admitted business, since these carriers are not backed by state guaranty funds. A strong rating is especially important on surplus lines placements because the insured has less regulatory safety net if the carrier becomes insolvent. Agencies typically document the rating on the surplus lines disclosure form provided to the client.
How often does A.M. Best update its ratings?
A.M. Best conducts a full ratings review at least once per year for each rated carrier and can issue interim updates, outlook changes, or downgrades at any time based on new financial information. Agencies should re-check the current rating at each renewal rather than relying on the rating recorded at the original binding date. Rating changes are published on A.M. Best’s website and are typically picked up by agency management systems that track carrier data.
Where can an agent verify a carrier’s current A.M. Best rating?
Agents can verify a carrier’s current rating directly through A.M. Best’s website, which publishes Financial Strength Ratings and Financial Size Categories for rated insurers. Many agency management systems and comparative raters also pull and display current ratings during the quoting process. Confirming the rating directly with A.M. Best is the most reliable method when a contract requirement or lender condition depends on it.
Related Insurance Terms
- Surplus Lines Insurance: coverage placed with a non-admitted carrier when the standard market will not write a risk, where A.M. Best rating verification is especially important because state guaranty funds do not protect these policies.
- Admitted Carrier: an insurer licensed and regulated by a specific state, which is typically backed by that state’s guaranty fund regardless of its A.M. Best rating.
- Policyholder Surplus: the excess of an insurer’s assets over its liabilities, a core input A.M. Best uses to determine both the Financial Strength Rating and the Financial Size Category.
- Insolvency: the financial failure of an insurance carrier to meet its obligations, the outcome A.M. Best ratings are designed to help agents and insureds anticipate and avoid.
- State Guaranty Fund: a state-run safety net that pays a portion of claims when an admitted insurer becomes insolvent, a protection that does not extend to non-admitted surplus lines carriers.
Sources and References
- A.M. Best. Best’s Credit Rating Methodology.
- A.M. Best. Understanding Best’s Credit Ratings.
About the Author
Justin Goodman, CIC, CCIP, CISC, CLCS, CRIS, PCIA, QCLS, MFHR
CEO and Co-Founder, Total CSR, Inc.
Justin Goodman is a third-generation insurance broker with over two decades in agency operations. He has trained more than 50,000 CSRs, account managers, and producers in commercial and personal lines coverage, from workers’ compensation to construction risk. He was named 2024 Insurance Journal Agent of the Year and one of the nation’s top five construction insurance experts by Risk & Insurance. He is the author of Retain, which applies cognitive science research on memory and knowledge transfer to insurance training, and speaks nationally on how agencies build durable technical expertise in their teams.