Life Insurance & Annuities Forum

Aug. 29, 2007

I don't fully understand the differences among AAA, A++, and A- ratings. How can I determine how "good" an insurance company is?

Kurt, Connecticut

The first thing to note is that those ratings are only a measure of the financial strength of the company, not a measure of customer satisfaction or the quality of the products offered by that insurance company.

Standard & Poor's issues insurer financial strength ratings that are a current opinion of the financial security characteristics of the company with respect to its ability to pay under its insurance policies and contracts.

There are 10 rating categories, ranging from AAA — the highest insurer financial strength rating assigned by Standard & Poor's — to R — meaning that the insurance company is under regulatory supervision due to its financial condition. Plus (+) and minus (-) signs following ratings are used to show relative standing within the major rating categories.

Standard & Poor's defines its financial strength ratings as:

AAA An insurer rated 'AAA' has EXTREMELY STRONG financial security characteristics. AA An insurer rated 'AA' has VERY STRONG financial security characteristics, differing only slightly from those rated higher. A An insurer rated 'A' has STRONG financial security characteristics, but is somewhat more likely to be affected by adverse business conditions than are insurers with higher ratings. BBB An insurer rated 'BBB' has GOOD financial security characteristics, but is more likely to be affected by adverse business conditions than are higher rated insurers. An insurer rated 'BB' or lower is regarded as having vulnerable characteristics that may outweigh its strengths. 'BB' indicates the least degree of vulnerability within the range; 'CC' the highest.

BB An insurer rated 'BB' has MARGINAL financial security characteristics. Positive attributes exist, but adverse business conditions could lead to insufficient ability to meet financial commitments. B An insurer rated 'B' has WEAK financial security characteristics. Adverse business conditions will likely impair its ability to meet financial commitments. CCC An insurer rated 'CCC' has VERY WEAK financial security characteristics, and is dependent on favorable business conditions to meet financial commitments. CC An insurer rated 'CC' has EXTREMELY WEAK financial security characteristics and is likely not to meet some of its financial commitments. R An insurer rated 'R' is under REGULATORY SUPERVISION owing to its financial condition. During the pendency of the regulatory supervision, the regulators may have the power to favor one class of obligations over others or pay some obligations and not others. The rating does not apply to insurers subject only to nonfinancial actions such as market conduct violations. NR An insurer rated 'NR' is NOT RATED, which implies no opinion about the insurer's financial security.

For more information on Standard & Poor's financial ratings, read What the ratings mean.

You may also want to read What happens when your insurance company goes belly-up?

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Disclaimer: We are journalists, not financial planners or insurance brokers. Nothing we say should be interpreted as a recommendation to buy or sell any insurance product, or to provide other financial or legal advice.