A.M. Best Rating
An independent measure of an insurance carrier financial strength and claims-paying ability.
An A.M. Best rating is an independent opinion of an insurance carrier's financial strength and its ability to pay claims and contractual obligations. The scale runs from A++ (Superior) down to D (Poor), with additional categories for carriers under regulatory supervision. Because an annuity is backed only by the issuing carrier's promise - not by federal deposit insurance - the rating is the single most direct read on who stands behind the contract.
- —A++ and A+ are the Superior tier; A and A- are Excellent. Most annuity carriers in wide distribution sit in one of those four.
- —A rating is an opinion about financial strength, not a guarantee of performance or of any credited rate.
- —Ratings change. The rating at issue and the rating today are two different facts, and only the current one matters for an in-force review.
- —A.M. Best is one of four recognised insurer rating agencies. S&P, Moody's, and Fitch use different scales and can disagree.
Ratings run on a lettered scale, with A++ and A+ at the top. Because an annuity is backed by the carrier promise rather than by federal deposit insurance, the rating carries real weight in any contract comparison.
Ratings are opinions about financial strength, not guarantees, and they change over time. The rating at issue and the rating today are two different facts.
The A.M. Best rating scale, in full
A.M. Best assigns a Financial Strength Rating (FSR) that summarises its view of a carrier's balance sheet strength, operating performance, business profile, and enterprise risk management. The letters group into descriptive categories rather than a simple pass or fail.
| Rating | Category | What it signals |
|---|---|---|
| A++, A+ | Superior | Strongest assessed ability to meet ongoing insurance obligations |
| A, A- | Excellent | Excellent assessed ability to meet ongoing obligations |
| B++, B+ | Good | Good assessed ability to meet ongoing obligations |
| B, B- | Fair | Fair ability; vulnerable to adverse changes in conditions |
| C++, C+ | Marginal | Marginal ability; vulnerable to adverse changes |
| C, C- | Weak | Weak ability; very vulnerable to adverse changes |
| D | Poor | Poor ability; extremely vulnerable |
| E, F, S | Under supervision / in liquidation / suspended | Regulatory action or suspended rating rather than a strength grade |
Why the rating matters more for an annuity than for most products
A bank deposit is insured by the FDIC up to applicable limits. An annuity is not. What stands behind an annuity is the general account of the issuing insurance company, backed at a second remove by the state guaranty association in the owner's state of residence, subject to state-specific coverage limits that are typically far below large contract values.
That structure puts the carrier's own solvency at the centre of the analysis. A contract crediting a quarter point more from a B+ carrier than from an A+ carrier is not a better contract by that quarter point alone - the extra yield is compensation for accepting a different credit profile, and it should be evaluated as such.
Outlooks, under review, and what a change actually means
Each rating carries an outlook - Positive, Stable, or Negative - indicating the agency's view of likely direction over the medium term. A carrier can also be placed 'under review' with developing, positive, or negative implications, usually after an acquisition, a large reserve change, or a capital event.
A downgrade does not affect the contractual guarantees already written into an in-force annuity. Those obligations remain enforceable. What a downgrade changes is the assessed likelihood that the carrier can continue meeting them comfortably, which is why it is worth knowing rather than ignoring.
How the rating is read inside the Annuity Position Score
Carrier strength is one of the five pillars of the Annuity Position Score. The read is deliberately narrow: what is the current Financial Strength Rating of the issuing carrier, has it moved since the contract was issued, and does the rating sit in a tier consistent with the guarantees the contract promises.
The pillar does not treat a lower rating as a defect on its own. It treats an unexamined rating as a gap, because the owner of a contract should know which company's balance sheet their guaranteed income depends on.
- —Current FSR of the issuing carrier, not the parent or the marketing brand
- —Direction of travel since issue, including any outlook change
- —Whether the state guaranty association limit covers a meaningful share of the contract value
Frequently asked questions
- What is a good A.M. Best rating for an annuity carrier?
- A- (Excellent) is generally treated as the practical floor for carriers in broad annuity distribution, with A, A+, and A++ above it. Ratings below A- are not automatically disqualifying, but they warrant a closer look at why the yield is higher and at state guaranty association coverage limits.
- Is an A.M. Best rating the same as FDIC insurance?
- No. FDIC insurance is a federal government guarantee on bank deposits. An A.M. Best rating is a private agency's opinion of an insurance company's financial strength. Annuities are not FDIC insured; they are backed by the issuing carrier and, secondarily, by state guaranty associations up to state limits.
- Does an A.M. Best downgrade affect my existing annuity contract?
- A downgrade does not change the contractual terms of an in-force annuity. Guaranteed rates, income riders, and surrender schedules stay as written. It changes the agency's assessment of the carrier's financial strength going forward.
- How often do A.M. Best ratings change?
- A.M. Best reviews rated carriers at least annually and can act at any time on a material event. Because of that, the rating in a contract illustration from several years ago should never be assumed to be current.
- What do the plus and minus signs mean in A.M. Best ratings?
- They are modifiers within a letter category. A+ is stronger than A, which is stronger than A-. A++ and A+ together make up the Superior category; A and A- make up Excellent.