What Is an A-Rated Insurance Company?

how does an A-rated insurance company work

The Balance / Julie Bang

DEFINITION

An A-rated insurance company is one that the credit agencies judge to be on strong financial footing. An A-rated insurance company is more likely to honor the terms of your policy than a company with a lower grade.

Definition and Examples of A-Rated Insurance Companies

An A-rated insurance company is one that's considered highly likely to repay creditors and pay any claims presented. Many insurance companies are rated on this scale, which allows consumers to easily compare the financial strength of different insurance companies without having to pore over financial documents.

A-rated insurance companies include Geico, Progressive, and State Farm.

How Does an A-Rated Insurance Company Work?

The stronger the financial strength rating of an insurance company, the less likely it is that it will experience financial failure and perhaps even close its doors. As an insurance customer, you need a company you can depend on to be around when it is most needed.

There are several credit rating agencies that issue these letter grades. Their scales vary slightly, but they generally range from AAA to F, with AAA being the best.

A "AAA" rating is technically better than an "A" rating. However, casual observers may simply refer to any company with any type of A rating as an "A-rated insurance company." Any kind of "A" rating signals a financially strong company, whether it's technically "AAA," or "AA," or "A."

Note

For some people, finding A-rated companies is about more than shopping for the best product. Some contractors, for example, are unable to complete certain types of jobs unless they can show they have insurance coverage through a company with a rating of at least "A-."

How Insurance Ratings Are Determined

Insurance companies receive their financial strength ratings from insurance rating organizations that carefully analyze and evaluate a company’s financial performance.

Some of the key factors that are used to determine an insurance company’s rating include financial reserves, claims payment history, business focus, company structure, and management style. Each insurance rating organization uses its own formula for determining the varying degrees of financial strength ratings and their significance.

The major rating agencies include:

Examples of A-Rated Insurance Companies

Check the chart below for some examples of A-rated insurance companies. Pay attention to how their ratings compare among agencies. Companies are likely to advertise their best rating, but consumers should check to see whether all agencies agree on that rating, and how they differ.

This list is by no means meant to be complete, and there are many more highly rated homeowners insurance carriers than those listed below. However, if you are on the hunt for the best value on an insurance policy, here are some of the top-rated companies that might serve as good places to start your search.

The Bottom Line

A rating of “A” or better for an insurance company is important to you as the insurance consumer, because it helps you judge which companies perform best in the area of creditworthiness and which ones will be around when you need them in uncertain and trying times.

Of course, while an excellent financial strength rating is an important factor in determining which insurance company may be right for you, there are other factors to take into consideration. Customer service, price, product offerings, and overall customer satisfaction are just a few of the factors that can be taken into account alongside credit ratings.

There are several organizations, in addition to insurance rating organizations, that can help you get an overall picture of an insurance company’s performance, including Ward’s Top 50 property-casualty insurance companies, the Comdex Ranking, J.D. Power & Associates, and the Better Business Bureau. The more tools you have, the better equipped you are to find the right insurance coverage for you and your family.

Key Takeaways

  • An A-rated insurance company is one that has received a high rating from a credit rating agency like Moody's, AM Best, or Fitch.
  • An A-rated insurance company is likely to honor the terms of its policies and repay its creditors.
  • There are several different types of "A" ratings, such as "AAA" and "A-," but they all generally indicate that a company is on stronger financial footing than companies with lower letter grades.

Article Sources

  1. New York State Office of General Services. "Contractor's Insurance Requirements," Page 1. Accessed Nov. 24, 2021.