How to Compare AM Best-Style Financial Strength Information Carefully

Quick answer

Quickly assess an insurer's financial health by checking its AM Best rating (or equivalent from S&P, Moody's, Fitch) along with its complaint record and licensing status through your state insurance department or the NAIC. Look beyond the letter grade: read the rating rationale, note the outlook, and confirm the rating is current. Remember, a strong rating indicates a low probability of default, not a guarantee, and it should be one of several factors in your decision.

Who should use this guide

If you're buying life insurance, an annuity, long-term care insurance, or any policy where the insurer's promise could span decades, this guide is for you. It's also valuable when comparing quotes from lesser-known companies or when you want to ensure your existing insurer remains stable. Even for auto or home insurance, knowing your carrier's financial strength can provide peace of mind.

• You're purchasing a life insurance policy or annuity.
• You're comparing insurers you haven't heard of before.
• You're reviewing your current insurer's stability after market changes.
• You want to understand the difference between rating agencies.
• You're preparing to ask your agent or broker the right questions.

What to check first

Before focusing on ratings, confirm the insurer is licensed in your state by visiting the NAIC's Consumer Information Source or your state insurance department website. Next, check the company's complaint index to see if it has a higher-than-average number of justified complaints. Then, gather financial strength ratings from at least two independent agencies. AM Best ratings are available with free registration; S&P and Moody's ratings may require a login or can be found via press releases. Each agency uses a unique scale-for instance, AM Best's top rating is A++, while S&P's is AAA. Understand what each scale means and don't mix them up.

• Verify license at https://content.naic.org/cis_consumer_information.htm.
• Look up the complaint ratio relative to the national median.
• Check AM Best rating at ambest.com (free account needed).
• Search for any S&P, Moody's, or Fitch ratings the company may have.
• Read the rating rationale for context, not just the letter grade.
• Note the rating date-outdated ratings can be misleading.

Action steps

Start by listing the insurance companies you're considering. For each, use your state insurance department's online lookup or the NAIC's tool to verify they are authorized to sell in your state. Check whether any regulatory actions have been taken against them. Next, visit AM Best's website to obtain the Financial Strength Rating (FSR) and read the associated commentary. Look for the issuer's rating outlook (stable, positive, negative, or developing). If available, compare with ratings from S&P, Moody's, Fitch, or Kroll. Note that a company rated A- by AM Best is considered 'Excellent,' but a B++ is 'Good'-decide what threshold you're comfortable with. Finally, integrate this information with your coverage needs using tools like InsuranceDatabase's needs quiz to ensure you're choosing the right policy amount.

• Use the NAIC Consumer Information Source (linked above) to get the insurer's NAIC number and key data.
• Check your state's insurance department website for any enforcement actions.
• Register on ambest.com (free) to view the issuer's current FSR and outlook.
• Search other rating agencies' sites or news releases for additional ratings.
• Read the rating agency's definition of the scale you're reviewing.
• Decide on a minimum rating threshold (e.g., AM Best A- or higher) based on your risk tolerance.
• Recheck ratings periodically if you hold a long-term policy.

Tools to use on InsuranceDatabase

While InsuranceDatabase doesn't provide financial strength ratings itself, its interactive tools can help you focus your search so you can then evaluate insurers' health. Use the Needs Quiz at /us/tools/#needs-quiz to estimate how much coverage you need. The Coverage Needs tool at /us/tools/#coverage-needs offers a more detailed calculator. If you're shopping for term life insurance, the Term Life tool at /us/tools/#term-life helps compare basic policy features. The Deductible Analyzer at /us/tools/#deductible can clarify trade-offs between premium and deductible, which is useful when comparing insurers with different financial profiles. For travel insurance, the Travel Timing tool at /us/tools/#travel-timing can guide you on when to buy. And the comprehensive Buying Checklist at /us/tools/#checklist reminds you of all steps, including verifying financial strength. Use these first to narrow your options, then apply the financial strength checks from this guide.

Common mistakes to avoid

One frequent error is assuming a high rating guarantees the insurer will never fail; ratings are opinions based on current data and can change. Another is ignoring the complaint record-a financially strong company can still have poor claims service. Some consumers mistakenly compare ratings across agencies without understanding the scales (e.g., an AM Best B+ is not the same as an S&P B+). Others forget to verify the rating is up to date or fail to check the state insurance department for market conduct actions. Also, relying on a single rating agency can miss important nuances.

• Relying on only one rating agency's score.
• Confusing rating scales from different agencies.
• Overlooking complaint indices and regulatory actions.
• Assuming a high rating means the best price or coverage.
• Not checking whether the rating is recent (within the last year).
• Thinking that a high rating eliminates all risk.

Questions to ask before buying

When you speak with an agent or broker, ask: 'Which agencies rate this company, and what are the current ratings?' Also inquire about the rating outlook-is it stable, or has there been a recent downgrade? Request the NAIC number to independently verify license status and complaint data. Ask if the company has any pending regulatory actions or recent market conduct issues. For life insurance, ask about the insurer's participation in state guaranty associations, which provide limited protection if a company fails. Finally, ask if there are any financial strength requirements for policies like long-term care or annuities in your state.

• What are the company's current financial strength ratings from AM Best and at least one other agency?
• When were these ratings last updated, and what is the outlook?
• Can you provide the company's NAIC number for independent verification?
• Has the company had any recent rating downgrades or regulatory actions?
• What is the company's complaint index relative to the national median?
• Does the company participate in the state guaranty association, and what are its coverage limits?
• Are there any state-specific financial requirements for this type of policy?

Educational disclaimer

The information in this guide is for general educational purposes only and does not constitute professional financial or insurance advice. InsuranceDatabase is not an insurance company, agent, broker, or licensed adviser, and it does not issue financial strength ratings or recommend specific insurers. Always verify current licensing, complaint data, and ratings with the NAIC, your state insurance department, and the rating agencies directly. Financial strength ratings are opinions and not guarantees of an insurer's future ability to pay claims. Past performance does not predict future results.