Define a Rated Insurance Carrier

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The financial strength of an insurance carrier is important
The financial strength of an insurance carrier is important (Image: money matters image by Pix by Marti from Fotolia.com)

A rated insurance carrier is one that has received financial size and financial strength ratings from a financial rating agency such as A.M. Best. Ratings are commonly used by prospective insureds to evaluate the ability of an insurance carrier to pay potential claims.

Rated Carrier

To secure a rating from A.M. Best, insurance carriers must submit to a comprehensive review by the agency of its financial standing. The insurance carrier must provide significant amounts of data and must open its books to scrutiny by A.M. Best.

Unrated Carrier

Not all insurance carriers agree to undergo the rating process. Consequently, some do not have a rating issued by A.M. Best or any other agency. A common example is a state-run workers' compensation insurance fund that has no competition for business.

Financial Size

The financial size rating is provided as a Roman numeral, denoting a category in which the insurance carrier's policyholder surplus is measured. A size of “I” would equate to policyholder surplus of less than $1 million, whereas the highest category of “XV” denotes a surplus of $2 billion or greater.

Financial Strength

Unlike the size rating, which is an objective figure, the financial strength rating is based upon the rating agency's interpretation of an insurance carrier's financial position. Ratings are provided on an “A" through "F” scale, with “A++” being the best.

Use of Ratings

Parties seeking insurance protection use ratings to determine whether or not an insurance carrier is a viable business partner. Insurance carriers with strong ratings often advertise their financial strength to assure potential customers of their ability to pay potential claims in the future.

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