Chelsey Tucker graduated with a Bachelor of History degree from Metropolitan State University in 2019. She now writes about insurance with her specialty being life insurance and has been quoted on Help Smart Phone and MEL Magazine.

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent

UPDATED: Mar 19, 2020

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When you buy insurance, you may feel a fleeting moment of nervousness. There are so many companies with different insurance ratings. You’ve taken the time to compare insurance options and selected the best, but how do you know how reliable they are? How do you know if an insurance company will actually be able to provide you with funds when disaster strikes?

Well, you could go by their insurance rating. But what’s good and what’s bad? Is a “B” company much worse than an “A”? And who puts these ratings together, anyway? Why do they all sound like types of batteries? Don’t worry; we’ve put together a guide that will help you understand who, exactly, is rating your insurance agency and why. If nothing else, it proves that even when you’re done with school, you’re still getting graded.

As for the battery thing, we have no idea. But the rest we can explain.

Insurance Ratings

What Do Those Letters Mean?

Roughly, this:

  • AAA = Extremely Strong
  • AA = Very Strong
  • A = Strong
  • BBB = Good
  • BB = Marginal
  • B = Weak
  • CCC = Very Weak
  • CC = Extremely Weak

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How Do the Ratings Work?

Insurance ratings are a bit like the wringer you got put through when you applied for a mortgage or car loan. True, huge companies have a lot more paperwork (and hopefully don’t have a youthful indiscretion at a concert many years ago). But it’s largely the same process; the ratings agencies gather as much information as possible, and then make a decision based on that information.

The first thing to understand is that these ratings are not hard-and-fast facts; they’re essentially informed opinions, like Amazon reviews, only from people who actually have degrees and can spell properly. While there are several agencies that rate insurance companies, like Moody’s, Standard and Poor’s, and Weiss, they all work on two basic principles: the facts they have about the company, and the company’s previous history. From this, the ratings agency extrapolates the likelihood of the company paying off its debts.

For example, New York Life, who you might remember from those “The Company You Keep” ads, has a triple-A rating from Standard and Poor’s. Why? Well, according to the financial data provided to S&P, the company is strong financially, and when a policy that fits their guidelines comes up to be paid out, New York Life has a strong record of paying.

In short, historically speaking, New York Life keeps its promises, and it looks like it’ll be able to do so in the future.

Who Gives Out the Ratings?

Insurance Ratings

The short answer? A huge collection of heavily-trained accountants and financial analysts.

Ratings like this are a big deal: look no further than the brouhaha that broke out when Standard and Poor’s downgraded the U.S.’s credit rating to AA from AAA. To say that a lot of people were less than happy with them is probably the understatement of the year. Keep in mind there’s a lot more at stake than just policies with individual people: insurance companies also have policies for other companies, specific projects, and assets, even governments. They need the best rating possible, or they’re going to be shut out of lucrative contracts in certain markets.

So, the ratings agencies are as meticulous as it gets. Seriously. You know those people who examine their dry-cleaning for even the tiniest speck of lint? They look like slobs next to these guys.

This is also why downgrading is a big deal: it means that a team of highly trained, serious-minded professionals took a look at a company and its prospects … and didn’t like what they saw. If you’re a CEO and wake up to a credit downgrade, you’re in for a very, very bad day.

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Why Ratings Only Tell You So Much

Here’s the big problem with ratings, and even the guys who work so hard to put this together will cheerfully admit this one: they can’t predict the future, and they can only go on the information they can find.

Take, for example, AIG. You might remember AIG as the insurance company that demanded a federal bailout and then took a spa day. But how, precisely, did AIG get in that position?

Remember a few years ago, when all those bad mortgages were sliced up into little slivers and turned into mortgage salads, wrecking the economy in the process? To oversimplify, everybody was wondering who was going to cover the losses if the housing markets turned sour. That turned out to be … AIG.

Insurance Ratings

So why did AIG take on those policies in the first place? Because according to credit ratings, these mortgage salads were sound financial instruments that would pay off. And why did they have such great credit ratings? Because some of the more unscrupulous banks were flat-out lying about the stability of the mortgages they gave out.

This illustrates the biggest problem with any credit rating: they’re based on the past, not the future. Even a strong, morally upright, and financially solvent company isn’t going to let some credit agency go picking through every single ledger and email account. So, the credit agencies go on what the company is willing to give them and the company’s past performance. If there’s a problem lurking, they’re in the same boat that you are: they’re not going to know about it until it’s too late.

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How To Use Ratings

If this sounds like you can get blindsided … well, you can. Does that mean ratings are worth almost as much as that Culture Club lunchbox in your attic? No. You just have to remember what they are; a review of the company’s history.

For example, most top insurers (including Mass Mutual, John Hancock, and Mutual of Ohama) have ratings of AA. This is because they’re financially strong and generally pay out. But whenever a disaster hits, they’re going to be shelling out for the majority of the damage. In theory, if we had, say, a hurricane that completely ripped up the entire East Coast, they might be under severe financial threat. However, that’s pretty unlikely, so they’re good investments.

So, use ratings, but also look at the company’s history and use online guides like to give you information about other important factors, like customer service.

Remember, there is no absolute guarantee with these ratings. But a little bit of logic (and expert advice from will help you make the best decisions possible.