A.M. Best

DEFINITION of 'A.M. Best'

A.M. Best is a ratings agency focused on the worldwide insurance industry. Founded in New York City in 1899 by Alfred M. Best, the privately held company is headquartered in Oldwick, New Jersey. Both the U.S. Securities and Exchange Commission and the National Association of Insurance Commissioners have designated the company a nationally recognized statistical rating organization.

BREAKING DOWN 'A.M. Best'

A.M. Best is the only ratings agency that specializes solely in the insurance industry. Moody's, Fitch and Standard & Poor's rate a wide range of debt instruments from both the public and private sectors in addition to insurance. The company's rating system focuses on an insurer's claims paying ability and the credit quality of its obligations.

Background

The company began rating insurance companies in 1899 and expanded to reporting on related news following the 1906 San Francisco earthquake. Damage from that quake, which devastated much of the city, resulted in insurance claims that bankrupted 12 American companies and two more in Europe. The need for reliable information and ratings on insurers led to the company's strong growth.

A.M. Best expanded to London in 1997, Hong Kong in 2000 and the Middle East in 2012.

Collapse of AIG

In September 2008, the financial market crisis hit insurance holding company AIG hard, as enormous losses at its derivative trading subsidiary, AIG Financial Products, threatened to bring down the entire company, including the dozens of insurance companies that it owned. The holding company's stock fell more than 60%, and the ratings agencies were forced to quickly and aggressively cut the company's ratings. The federal government took over and bailed out the company with $185 billion of financial support, which was repaid in full by the end of February 2013.

The ratings agencies, including Best, were sharply criticized for not recognizing sooner the risk that AIG's aggressive trading operations created. Best cut AIG's rating to A (excellent) from A+ (superior) as the company faced collapse.

Ratings System

Best issues both financial strength and issuer credit ratings. The former indicate the company's assessment of an insurer's ability to meet its obligations to policyholders. It takes into account both qualitative and quantitative assessments of the balance sheet, operating performance and business profile. There are six secure ratings from A++ to B+ and 10 vulnerable ratings from B to S, with the lowest indicating rating suspended.

Best's short-term credit ratings reflect the company's ability to pay commitments due in less than a year, and they range from a high of AMB1+ to a low of D (in default). Long-term credit ratings reflect the company's ability to pay its commitments maturing in more than a year and range from AAA (exceptional) to D (in default).

RELATED TERMS
  1. Corporate Credit Rating

    The opinion of an independent agency regarding the likelihood ...
  2. Early Warning Tests

    A series of financial ratios and other performance criteria used ...
  3. Cooperation Clause

    An insurance contract clause that requires the policyholder to ...
  4. Insurance Premium

    The amount of money that an individual or business must pay for ...
  5. Personal Lines Insurance

    Property and casualty insurance products for individuals that ...
  6. Assigned Risk

    A risk that an insurance company is required to provide coverage ...
Related Articles
  1. Insurance

    What Happens If Your Insurance Company Goes Bankrupt?

    When insurance companies go bankrupt or face financial difficulty, it's bad news for policy holders.
  2. Choosing a Long-Term Care Insurer

    As with any insurance product, you want to make sure you’re buying your long-term care policy from a reputable insurance company: one that honors its contracts and has the financial means ...
  3. Personal Finance

    Mutual Vs. Publically Traded Insurance Companies

    Should you buy your insurance policy from a mutual or publically traded insurance company?
  4. Stock Analysis

    What AIG Looks Like Now (and How it Got that Way)

    Despite some mammoth mistakes and a gargantuan government bailout, AIG remains a global insurance powerhouse. Here's how it maintains its position.
  5. Home & Auto

    Bundle Your Insurance For Big Savings

    Bundling your insurance can save you money and time. Read on to see how get the most out of multiline insurance discounts.
  6. Insurance

    Falling Giant: A Case Study Of AIG

    Find out why the U.S. government approved an enormous bailout package for American Investment Group (AIG).
  7. Home & Auto

    The History Of Insurance In America

    Insurance was a latecomer to the American landscape, largely due to the country's unknown risks.
  8. Investing

    The Power of Major Credit Rating Agencies

    The performance of major independent credit rating agencies is a controversial topic, particularly due to the strength of their influence.
  9. Home & Auto

    Intro To Insurance: Fundamentals Of Insurance

    By Cathy ParetoHow does insurance work? Insurance works by pooling risk.What does this mean? It simply means that a large group of people who want to insure against a particular loss pay their ...
  10. Personal Finance

    The Debt Ratings Debate

    Lack of competition and potential conflicts of interest have called the value of these ratings into question.
RELATED FAQS
  1. Why should I consider looking for the A.M. Best rating before investing in an insurance ...

    Find out about the rating system that A.M. Best uses to provide financial strength ratings for companies in the insurance ... Read Answer >>
  2. Should I be worried about my insurance company?

    Yes, policyholders should also take a serious look at the financial stability of their current insurance company especially ... Read Answer >>
  3. Who are the best-rated life insurance companies in the US?

    Learn about what makes an insurance company the best. Read about the best life insurance companies in the U.S. in 2014, following ... Read Answer >>
  4. What is the average return on total revenue for the insurance sector?

    Learn about the three main segments of the insurance industry, and find out what the average return on revenues is for the ... Read Answer >>
  5. How does the risk of investing in the insurance sector compare to the broader market?

    Discover the risks of investing in the insurance sector compared to the broader economy. Insurance stocks thrive when short-term ... Read Answer >>
  6. What are examples of the largest companies in the insurance sector?

    Read about some of the largest and most influential companies in the insurance sector, a list that includes Berkshire Hathaway ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center