How Are Insurance Ratings Established? #insurance #for #cars

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Ratings Companies

There are a number of rating agencies that issue opinions of insurance companies. Standard Poor’s is one example of a rating agency that rates insurance companies; others include A.M. Best and Weiss Ratings. Each rating agency has its own rating instrument to measure an insurance company’s financial strength.


Information used to calculate an insurance company’s rate comes from the company and/or is obtained by the rating agency from other reliable sources, such as creditors, contractors, and providers of the insurance company.

Ratings System

Not all rating agencies use the same rating scale. Although most agencies use a scale with letter designations, the letter designations don’t necessarily have the same meaning. For instance, Standard Poor’s rating scale uses AAA to denote an extremely strong rating, and CC to indicate a very weak rating. Standard Poor’s rating scale has eight letter ratings, from best to worst: AAA, AA, A, BBB, BB, B, CCC, and CC.

There are two other rating categories that Standard Poor’s uses: R and NR. R means an insurance company is under regulatory supervision, and NR means it is not rated.

Ratings are subject to change, and they can be suspended and removed by the rating agency under certain circumstances–for example, when discrepancies in the information are found, and when clarity of information is needed.


Ratings aren’t an indicator of whether an insurance company has the capacity to meet its non-policy debt obligations. Ratings pertain only to debts related to policies, securities, and contracts that the company issues.


The rating system is intended to be used as a guide. It’s not considered perfect, because it doesn’t take into account such things as deductibles, cancellation penalties, or timeliness of payments. In addition, it doesn’t factor in foreign-exchange limitations of insurance companies with subsidiaries in other countries, which can affect their financial standing. For these reasons, it’s not suggested that ratings be used as recommendations to purchase or cancel a policy and contract or to buy, hold, or sell a security.