Definition
An AM Best rating is a financial strength rating issued by AM Best Rating Services, the specialized rating agency that has historically been the primary source of insurer financial strength opinions in the United States, using a proprietary letter-grade scale ranging from A++ at the top to F for insurers in liquidation.
Why it matters
AM Best is the rating agency most closely associated with the U.S. insurance industry, and an AM Best rating is functionally the default reference when a carrier's financial strength is discussed in the annuity market. Its scale, methodology, and rating actions are widely used by distribution intermediaries, plan fiduciaries, and individual purchasers as the primary rating signal, often supplemented by ratings from S&P Global, Moody's, and Fitch for larger carriers.
How it works
AM Best's financial strength rating scale is divided into a Secure range and a Vulnerable range. Within the Secure range, the ratings from highest to lowest are A++, A+ (both categorized as Superior), A, A- (Excellent), and B++, B+ (Good). Within the Vulnerable range, the ratings are B, B- (Fair), C++, C+ (Marginal), C, C- (Weak), D (Poor), E (Under regulatory supervision), F (In liquidation), and S (Rating suspended). Each rating carries an outlook — Positive, Negative, Stable, or Developing — indicating the likely direction of any near-term rating action. AM Best also publishes a Long-Term Issuer Credit Rating on a separate scale (aaa through d) that assesses the insurer's ability to meet senior financial obligations, which is analytically distinct from the financial strength rating and is used in different contexts. The methodology (Best's Credit Rating Methodology, or BCRM) assesses the insurer across balance sheet strength, operating performance, business profile, and enterprise risk management, with the balance sheet strength assessment relying on a proprietary risk-adjusted capital ratio called BCAR (Best's Capital Adequacy Ratio). Rating actions — upgrades, downgrades, affirmations, watch-list placements — are announced publicly and accompanied by rationale statements that describe the analytical basis for the action. Historically, most U.S. life and annuity carriers writing meaningful volume have carried an AM Best rating in the A range; ratings below A- signal materially different counterparty exposure than the standard reference.
In practice
For an individual comparing annuity offerings, the AM Best rating is often the first counterparty comparison signal available, and its interpretation follows the scale's Secure-versus-Vulnerable distinction. Carriers holding A- or higher are in the Secure range, with a gap between the A range (Superior/Excellent) and the B range (Good/Fair) that carries analytical weight — an A- carrier and a B++ carrier are two rating notches apart on the letter scale but sit on opposite sides of the Secure-range midpoint. A professional working with the individual should identify the current AM Best rating, the outlook, any recent rating actions, and the date of the last rating review; ratings can be affirmed, upgraded, or downgraded between annual review cycles when the analyst identifies material change. For a plan fiduciary applying the ERISA safe harbor for annuity provider selection, the AM Best rating typically enters a multi-agency threshold requirement rather than serving as a standalone qualification. Watch-list placements and negative outlooks are analytically informative and warrant attention independent of the rating level itself — a stable A carrier and a negative-outlook A carrier convey different forward-looking signals.
In the Longevity Standard Framework
AM Best rating is supporting vocabulary in the Longevity Standard framework, naming the most widely referenced specific rating input to the financial strength rating category.
Related terms
- Financial strength rating
- Insurance company
- Counterparty risk
- Longevity Standard counterparty tier
- Solvency horizon
- Statutory accounting principles
- Risk-based capital
- General account