Market & Policy · Insurance Term
AM Best Rating (Financial Strength Rating)
Definition
An AM Best rating is an independent opinion of an insurance company's financial strength and ability to pay claims. Lenders and contracts often require insurers rated at or above a minimum level, such as A-, along with a minimum financial size category.
In Plain English
AM Best is a credit rating agency that focuses on insurers. Its Financial Strength Rating uses letter grades from A++ (superior) down to lower grades for weaker companies. It also assigns a Financial Size Category, shown as a Roman numeral, which reflects the insurer's capital and surplus.
Ratings matter to owners because a policy is only as good as the company's ability to pay. They matter even more to lenders: most lender insurance requirements set a minimum rating and size. If your insurer is downgraded mid-term, the lender may ask you to replace the coverage.
Ratings apply to admitted insurer and surplus lines insurance companies alike. A rating is one helpful signal, not a guarantee; regulators such as state insurance departments and the NAIC also monitor solvency.
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Example
Hypothetical: a loan agreement requires insurers rated A- or better with a size category of VIII or higher. A quote from an insurer rated B++ is cheaper, but the lender would reject it, so the owner's agent looks only at markets that meet both thresholds.
What to Watch For
- Check your loan and lease documents for minimum rating and size requirements.
- Ask your agent for the current rating of each insurer quoted.
- If a policy is split among several insurers, check each insurer's rating.
- Ask what happens under your loan if an insurer is downgraded mid-term.
Common Questions
What AM Best rating do lenders usually want?
Many commercial lenders ask for A- or better plus a minimum financial size category. Your loan documents state the exact requirement.
Is a lower-rated insurer always a bad choice?
Not always, but it can create problems with lenders and adds risk if the company struggles. Weigh the rating alongside price and coverage.
Last updated October 14, 2026 · Primesure editorial team · How We Write