DEFINITION of 'Insurance Company Credit Rating '

The opinion of an independent agency regarding the financial strength of an insurance company. An insurance company’s credit rating indicates its ability to pay policyholders’ claims. It does not indicate how well the insurance company’s securities are likely to perform for investors. In addition, an insurance company’s credit rating is considered an opinion, not a fact, and ratings of the same insurance company can differ among rating agencies.

BREAKING DOWN 'Insurance Company Credit Rating '

There are four major insurance company rating agencies: Moody’s, A.M. Best, Fitch and Standard & Poor’s (the last two companies also provide corporate credit ratings for investors). Each agency has its own rating scale that doesn’t necessarily equate to another company’s rating scale, even when the ratings appear similar.

For example, A.M. Best’s highest insurance company credit rating is A++, meaning superior, while Fitch’s is AAA for exceptionally strong, Moody’s is Aaa for highest quality, and Standard & Poor’s is AAA for extremely strong. It is important not to confuse, for example, A.M. Best’s second-best rating of A+ (for superior) with Fitch’s fifth-best rating of A+ (for strong), or A.M. Best’s C rating (for weak) with Moody’s C (for lowest rated).

An entity that appears to be a single, major insurance company may actually be composed of several smaller insurance companies, each with its own insurance company credit rating. For example, MetLife, Inc., has a number of subsidiaries, including American Life Insurance Company, General American Life Insurance Company, MetLife Insurance Company of Connecticut and New England Life Insurance Company. Moody’s has rated American Life Insurance Company as A1, while it has rated the other three Aa3. What's more, these ratings differ from the company’s corporate credit ratings, which have included, for example, Baa2 for MetLife, Inc. preferred stock and A3 for MetLife, Inc. senior unsecured debt, in April 2014.

RELATED TERMS
  1. S&P Claims Paying Ability Rating

    The S&P claims paying ability rating is a letter grade that signifies ...
  2. Bureau Rate

    A standard price per unit of insurance set by a state's insurance ...
  3. Insurance Industry ETF

    A sector-following fund that invests primarily in insurance companies, ...
  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. Life Insurance

    A protection against the loss of income that would result if ...
Related Articles
  1. Financial Advisor

    10 Best Life Insurance Companies of 2016 (MCO, PRU)

    The 10 best life insurance companies of 2016 have strong financials, longstanding brands and excellent reputations for customer service.
  2. 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.
  3. Insurance

    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.
  4. Financial Advisor

    Mutual Vs. Publically Traded Insurance Companies

    Should you buy your insurance policy from a mutual or publically traded insurance company?
  5. Insurance

    The History Of Insurance In America

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

    Exploring Advanced Insurance Contract Fundamentals

    Understanding your contract can help you protect our family's financial security.
RELATED FAQS
  1. Should I be Worried About My Insurance Company?

    Policyholders should also take a serious look at the financial stability of their current insurance company especially if ... Read Answer >>
  2. 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 >>
  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 much do changes in interest rates affect the profitability of the insurance sector?

    Learn about the relationship between interest rates and insurance company profitability, and how interest rates can affect ... Read Answer >>
Hot Definitions
  1. Covariance

    A measure of the degree to which returns on two risky assets move in tandem. A positive covariance means that asset returns ...
  2. Liquid Asset

    An asset that can be converted into cash quickly and with minimal impact to the price received. Liquid assets are generally ...
  3. Nostro Account

    A bank account held in a foreign country by a domestic bank, denominated in the currency of that country. Nostro accounts ...
  4. Retirement Planning

    Retirement planning is the process of determining retirement income goals and the actions and decisions necessary to achieve ...
  5. Drawdown

    The peak-to-trough decline during a specific record period of an investment, fund or commodity. A drawdown is usually quoted ...
  6. Inverse Transaction

    A transaction that can cancel out a forward contract that has the same value date.
Trading Center