Insurance Financial Strength Ratings Explained
A financial strength rating tells you how likely an insurer is to be able to pay claims years from now. Here is how the rating systems work.
An insurance policy is a promise to pay in the future, and a financial strength rating is the closest thing to an independent check on whether that promise is likely to be kept. This guide explains how these ratings work, building on the broader [framework for evaluating an insurance company](how-to-evaluate-an-insurance-company).
What a Financial Strength Rating Measures
Financial strength ratings assess an insurance company’s ability to meet its ongoing financial obligations, including paying out claims, based on factors such as capital reserves, underwriting results, investment performance, and overall balance sheet health. These ratings are distinct from consumer satisfaction or customer service scores — they focus specifically on solvency and claims-paying ability.
The Major Rating Agencies
Several independent agencies rate insurance companies, most notably:
AM Best — an agency that specializes heavily in the insurance industry specifically. Moody’s — a major credit rating agency that also rates insurers among other financial institutions. S&P Global Ratings — another major credit rating agency covering insurers. Fitch Ratings — a global agency that also issues insurer financial strength ratings.
Each agency uses its own letter-grade scale and methodology, so a rating from one agency is not automatically equivalent to a similarly-lettered rating from another. It is worth understanding which agency issued a given rating rather than assuming all rating scales work identically.
We intentionally do not list specific companies’ current ratings here. Ratings are reassessed periodically and can change, so the only reliable source is checking directly with the rating agency at the time you’re shopping.
Why This Matters More for Long-Duration Policies
The time horizon of a policy changes how much weight a rating should carry:
Ratings Don’t Measure Everything
A high financial strength rating indicates the company is likely able to pay claims, but it says little about how smoothly or quickly claims are actually processed, or how satisfied policyholders are with the experience. For that, [complaint index data](insurance-complaint-ratios-and-claim-satisfaction) is a more relevant source. A complete evaluation checks both.
How to Check a Rating
Identify which rating agencies cover the specific insurer you’re considering. Check the current rating directly through the rating agency’s own published resources. Note the rating scale used by that agency, since scales differ between agencies. Reassess before renewing a long-duration policy, since ratings can change over time.
Common Mistakes to Avoid
Relying on an outdated rating instead of checking the current one. Assuming a rating from one agency means the same thing on another agency’s scale. Treating a strong financial strength rating as a substitute for checking complaint or claims-satisfaction data. Skipping the rating check entirely for long-duration policies like life insurance.
Conclusion
Financial strength ratings are one of the most useful independent checks available before committing to an insurance policy, particularly a long-duration one. Check the current rating directly with the issuing agency, understand which scale it uses, and pair it with [complaint and claims-satisfaction data](insurance-complaint-ratios-and-claim-satisfaction) for a fuller picture before you buy.
