AM Best Rating
A financial strength rating issued by AM Best that reflects an insurance carrier's ability to meet its policyholder obligations.
What It Is
An AM Best Rating is an independent opinion of an insurance carrier's financial strength and ability to pay claims, issued by AM Best Company, the oldest credit rating agency focused exclusively on insurance. Ratings range from A++ (Superior) at the top down through A+, A, A-, B++, B+, and into vulnerable categories like B, C, and D.
The rating considers balance sheet strength, operating performance, business profile, and enterprise risk management. AM Best also publishes a Financial Size Category (FSC) running from Class I (under $1 million in surplus) to Class XV (over $2 billion), which signals capacity to absorb large losses.
For brokers, an AM Best rating of A- or better is the de facto industry minimum. Many certificate holders, contractors, lessors, and government entities require carriers rated A- VII or better in their insurance specifications, making the rating a daily compliance checkpoint.
Why It Matters for Brokers
Placing a client with a non rated or sub A- carrier without informed consent is one of the most common E&O fact patterns. If that carrier later becomes insolvent or downgrades, the broker can be held responsible for claims the carrier cannot pay. Beyond solvency risk, contract compliance is at stake: a tenant whose certificate is rejected because the carrier is rated B++ may lose a lease and pursue the broker. Monitoring AM Best ratings throughout the policy term, not only at binding, is part of the agency standard of care.
Real-World Example
A broker places a $25,000 premium habitational package with a regional carrier rated A- VIII. Six months later AM Best downgrades the carrier to B++ following adverse loss development. The broker proactively notifies the insured, re markets the account before renewal, and binds replacement coverage with an A rated carrier. The agency documents the downgrade alert, the client communication, and the rewrite, building a clean E&O record.
Common Mistakes
- 1Failing to recheck AM Best ratings during the policy term, missing mid term downgrades that may breach contract requirements with landlords, lenders, or upstream contractors.
- 2Treating Financial Size Category as irrelevant and placing a $50 million property schedule with a Class V carrier that cannot reasonably absorb a total loss.
- 3Confusing AM Best with Demotech, S and P, or Moody's ratings on certificate requirements that specifically demand AM Best, leading to rejected COIs.
- 4Binding with a non rated surplus lines carrier without obtaining the insured's signed acknowledgment of the additional insolvency risk.
How brokerageaudit.com Handles This
Submission Intake stores the AM Best rating and Financial Size Category for every quoting carrier. COI Tracker flags certificates whose underlying carrier rating drops below the holder's required threshold, and Renewal Manager surfaces accounts placed with downgraded carriers so producers can re market before expiration.