AM Best is a credit scoring service that only works with the insurance business around the world. AM Best gives credit scores that measure an insurance company’s trustworthiness, or how likely it is that the company won’t pay its bills. AM Best’s credit scores are used by consumers, financial experts, and businesses to help them make smart choices.
AM Best uses a ranking method to give the market a number that shows how financially healthy a company is. The Securities and Exchange Commission (SEC) of the United States has said that the company is a widely known data scoring group.
KEY TAKEAWAYS
- AM Best is a credit scoring company that focuses on figuring out how reliable insurance companies are as lenders.
- Alfred M. Best started AM Best in 1899 in New York City. After the earthquake in San Francisco in 1906, the company started to rate things.
- AM Best evaluates an insurance company’s ability to pay claims and meet its financial responsibilities by using both qualitative and quantitative measures.
- AM Best’s grades for financial health run from A++ to B+ at the top to B to S at the bottom, which means that a rating has been stopped.
Understanding AM Best
Alfred M. Best started the company in New York City in 1899. It is privately owned and has its main office in Oldwick, New Jersey. The company started rating insurance companies in 1899, and after the 1906 San Francisco earthquake, it started to report on news about insurance companies. Damage from the earthquake, which destroyed a lot of the city, led to insurance claims that put 12 American companies and two European companies out of business.
The company grew quickly because people wanted accurate information and review about insurance companies. AM Best opened offices in London in 1997, Hong Kong in 2000, Dubai in 2012, Mexico City in 2014, Singapore in 2015, and Amsterdam in 2018.
AM Best is the only credit-scoring company that only works in the insurance business. Moody’s, Fitch, and Standard & Poor’s all rate a wide range of public and private financial products, as well as insurance. AM Best’s scoring method is based on how well an insurer pays out claims and how creditworthy its responsibilities are.
People often look at AM Best’s credit scores before buying an insurance product to see how stable the company’s finances are and what kind of name it has. As part of their study and due investigation, financial workers and investors who want to buy stocks or bonds from an insurance company will look at the business’s AM Best ranking.
AM Best does business in more than 100 countries. It looks at the trustworthiness of more than 16,000 insurance companies from all over the world and writes reports about them.
AM Best Rating System
AM Best gives out a Best’s Credit Rating (BCR) that rates both the financial strength of the company and the credit of the bearer. The first number shows how Best thinks an insurer will be able to keep its promises to customers. It looks at the balance sheet, working success, and business picture from both a qualitative and a numeric point of view. Best has six safe ratings, from the highest A++ to the lowest B+, and ten risky ratings, from B to S, where S means the rating was stopped.
Best’s short-term credit ratings show how well a business can pay debts that are due in less than a year. These grades run from AMB1+ (excellent) to D (in default). Long-term credit scores show how well a company can pay its debts that are due more than a year from now. They run from AAA (exceptional) to D (in default).
AM Best is criticized
In September 2008, the financial market crisis hit insurance holding company American International Group (AIG) hard. Huge losses at its derivative trading business, AIG Financial Products, threatened to bring the whole company down, including the dozens of insurance companies it owned.
The parent company’s stock went down a lot, so rating agencies had to cut the company’s rating quickly and harshly. The federal government stepped in and gave the company $182 billion to help it get back on its feet. The money was all paid back by the end of February 2013.
Rating agencies, such as AM Best, got a lot of flak for not seeing the risk that AIG’s active trading operations caused sooner. Best lowered AIG’s financial strength rating to A+ (Superior) from A++ (superior) and lowered the company’s bearer credit rating to “aa” from “aa+” because the company was in danger of going bankrupt.
