Insurance Company Financial-Strength Ratings, Explained

# Insurance Company Financial-Strength Ratings, Explained

When you buy insurance, you're really buying a *promise* — that years from now, when disaster strikes, the company will have the money to pay. Price tells you what a policy costs today; a financial-strength rating tells you whether the carrier can keep that promise. For a big claim, the second question matters just as much as the first. Here's how these ratings work and how to use them.

What a Financial-Strength Rating Measures

A financial-strength rating is an independent grade of an insurer's ability to pay claims — its financial soundness and its capacity to meet obligations to policyholders. It's *not* a measure of customer service or price; it's about solvency and staying power.

Several respected agencies issue these ratings. AM Best is the oldest and most insurance-focused (founded in 1899 specifically to report on insurer financial stability), and its scale is the one most agents and consumers reference. Other major agencies include Standard & Poor's (S&P), Moody's, and Fitch, each with its own letter scale.

How the Scales Work

Each agency uses letter grades, and — confusingly — the scales differ slightly between them. As a general orientation using the widely cited AM Best system:

• A++ and A+ — Superior
• A and A- — Excellent
• B++ and B+ — Good
• Lower grades signal progressively more caution.

The key takeaway: an "A-rated" carrier or better is the common benchmark for a financially strong insurer. Because each agency's scale is different, always note *which* agency issued a rating and check what that specific grade means on that agency's own scale.

Why It Matters More on Big, Long-Tail Claims

For a small fender-bender, almost any licensed carrier will pay. Financial strength matters most when:

• The claim is catastrophic — a total home loss, a major liability judgment, a wide-area storm where the insurer is paying thousands of claims at once.
• The promise is long-term — life insurance and annuities may not pay out for decades, so the carrier's durability over time is central.

A financially weak insurer is more likely to struggle exactly when a regional disaster forces many claims through at once.

The Regulatory Backstop

Ratings aren't the only protection. In every state BNW serves, insurers must be licensed and must hold adequate reserves, overseen by that state's Department of Insurance using standards from the National Association of Insurance Commissioners (NAIC). If a licensed insurer becomes insolvent, state guaranty associations act as a backstop for certain covered claims, within limits set by law. That's a safety net — but it has caps, so starting with a strong carrier is still the smarter path. See what is insurance and how it works for how reserves and regulation fit together.

How to Check a Rating

• Ask your agent — a good independent agent knows the financial standing of the carriers they place.
• Look it up — AM Best and other agencies publish ratings; NAIC tools also help you confirm a company is licensed in your state.
• Confirm licensing — verify the carrier is authorized in your state through your state's Department of Insurance.

The Balance to Strike

Don't chase the cheapest quote from an unrated or thinly rated company. But don't overpay for a marginally higher grade either — the practical goal is a financially strong, well-rated, state-licensed carrier at a fair price. Balancing those is exactly what an independent agent does.

How BNW Helps

BNW Services (dba InsureToday24) is a licensed independent agency across Missouri, Kansas, Nebraska, Tennessee, Oklahoma, Arkansas, and Colorado, appointed with 69+ carriers. We place your coverage with financially sound, well-rated, licensed insurers — never an unknown promising a suspiciously cheap rate — and we can tell you the standing of any carrier we quote.

Want to know how your current carrier stacks up? Call (573) 594-5148, where Lucy can take your details, or ask us at insuretoday24.com.

References

• AM Best (insurer financial-strength ratings) — https://www.ambest.com
• National Association of Insurance Commissioners (NAIC) — https://www.naic.org
• Insurance Information Institute (III) — https://www.iii.org
• Investopedia (insurance company ratings explainer) — https://www.investopedia.com
• Missouri Department of Commerce & Insurance — https://insurance.mo.gov

Related

• What Is Insurance and How Does It Actually Work?
• Why Use an Independent Insurance Agent Instead of Buying Direct
• Why Your Insurance Rates Go Up (Even When You Did Nothing Wrong)
• Annuities Explained: Turning Savings into Lifetime Income
• Term Life Insurance: The Simple, Affordable Coverage Most Families Need

Watch

• Learn About AM Best Rating Services — AM Best (rating agency): https://www.youtube.com/watch?v=s6xMaSSSufU
• What Are AM Best Insurance and NAIC Number Ratings? — insurance educator: https://www.youtube.com/watch?v=IPThycQh1XU