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What Are AM Best Ratings & NAIC Numbers?

Leveraging AM Best Ratings and NAIC for Informed Decisions

What Is AM Best?

AM Best ratings assess the creditworthiness of more than 16,000 insurance companies by analyzing a variety of factors to produce a rating ranging from A+ and D.

These thorough reports consider an insurance company’s ability to pay out claims, any outstanding debts, and other relevant obligations.

One of the oldest credit rating agencies in the world, AM Best measures insurance-related risks to help financial professionals and consumers make informed decisions.

What Is an NAIC Number?

The North American Industry Classification System (NAICS) is a method used by federal statistical agencies to categorize individual business locations using a unique, six-digit NAIC code. This classification system aids in gathering statistical data and conducting analyses, ensuring consistency and enabling comparisons of individual businesses across the North American economy based on their statistical data. Each underwriting company is assigned a unique six-digit code used for identification and regulation purposes.

What Else Should You Know About AM Best Ratings?

How Are AM Best Ratings Determined?

Several factors influence an insurance organization’s AM Best rating, namely balance sheet strength, operating performance, enterprise risk management, business profile, and the details of a security, according to an AM Best guide to credit ratings.

Let’s take a look at each in more detail.

• Balance Sheet: These reflect financial dealings (assets, equity, liabilities, and so on) to indicate the insurer’s financial status and risk mitigation.
• Operating Performance: This ratio measures a carrier’s business output in relation to its input to assess long-term feasibility.
• Enterprise Risk Management (ERM): ERM refers to an insurer’s risk awareness and management.
• Business Profile: This benchmarks an insurer against others in the industry, measuring factors such as market position, underwriting performance, pricing, and more.
• Specific Nature of a Security: Finally, AM Best will analyze tradable equity, debt, and hybrid securities—all of which affect market capital.

How AM Best Ratings Relate to Certificate of Liability Insurance

Organizations, financial professionals, and consumers can use AM Best ratings to make informed decisions on selecting carriers for business.

For businesses dependent on third-party vendors for projects, analyzing and ensuring the selection of vetted providers is crucial.

As vendors are the backbone of any well-oiled project, securing reliable liability insurance providers that meet obligations and uphold policy standards is a must.

Many leading insurance agencies, like State Farm and Geico (A++), and Allstate (A+), rank highly on the AM Best FSR scale. Choosing a highly-rated provider through due diligence saves time and prevents future headaches.

As always, the work isn’t finished when you select a provider. Continue to stay updated on AM Best scores, as they might change in response to ongoing monitoring and rating meetings.

Achieve Success With Thorough COI Tracking & Vendor Management

Ensuring you and your vendors are covered through reputable carriers is key in helping your processes run smoothly.

Partnering with high-rated insurers that uphold policy standards and obligations helps mitigate risks and secure coverage when you need it most.

To help streamline all your vendor processes, today’s certificate of insurance (COI) tracking solutions enable you to track, hire, onboard, chat with, and manage vendors all from one centralized hub.

Cloud-based servers safely secure COIs and other documentation, and automated software enables you to correct compliance, insurance policy expirations, and other discrepancies with a few clicks.

Gone are the days of hounding vendors, hunting for certificates of liability insurance, and misplacing crucial paperwork under mountains of other documents.

Maximize your efficiency and save money by migrating your process digitally, bringing all your critical documents into the palm of your hand.

bcs is a leading vendor management solution, with full- and self-service tracking options that streamline your COI tracking, hiring, vendor management, and so much more. To optimize your third-party processes today, contact us today or schedule a demo.

Video Transcript

Before you decide on a place to eat at (or order takeout from) I am sure you check some type of reviews or rankings to make sure that you are getting the best Pad Thai around. No one wants subpar Pad Thai just like no one wants to work with vendors who have subpar insurance carriers. AM Best provides us with a way to check the ratings of our vendors' insurance carriers so we can make sure they are credible and reliable.

The AM Best is an insurance rating company used to measure the strength of insurance companies in the marketplace. This ranking is based on the insurance carrier’s stability and reputation, because these are strong indicators of the financial health of the company.

The rating is represented by letters ranging from A to D and roman numerals. The letters are similar to grades used in schools for students.

The rankings are:

• A++ = Exceptional
• A+ = Very Strong
• A = Strong
• B++ = Adequate
• B+ = Fair
• B = Marginal
• C = Poor
• D = In Default

The roman numerals represent the financial size of the company. This number is assigned to each business, anywhere from I (less than $1 million) to XV (greater than $2 trillion).

You should decide which rankings are sufficient for your company. Any service provider you are working with must have a carrier of a certain ranking or higher to be able to work with you. Any vendor you are hiring should be able to provide evidence of insurance through their broker using insurance companies with AM Best ratings.

On the COI, next to the “insurers affording coverage” section you will see a column for an NAIC number. The North American Industry Classification System (NAICS) is the system used by Federal statistical agencies in classifying individual business locations with an NAIC number.

But what is its purpose? This system serves as a way to facilitate the collection of statistical data and its analysis. Also, this system promotes uniformity since it compares individual businesses across the North America economy according to their statistical data.

Each underwriting company is assigned a unique six-digit code. These codes are used for identification and regulation purposes. One of the NAIC’s main goals is to promote a competitive market and they do this by making sure insurers follow fair practices. If you need to look up an insurance company’s information, you can do this with only their NAIC number.