AM Best ratings explained for business buyers

An AM Best Financial Strength Rating is an independent opinion of how well an insurer can meet its ongoing policy obligations. The scale runs from A++ down to D, with E, F and S for companies under regulatory supervision, in liquidation or suspended. Ratings of B+ and above are classed as "secure," and most commercial contracts ask for A- or better paired with a size category of VII or higher.

What the rating actually measures

AM Best's own Guide to Best's Financial Strength Ratings defines the rating as "an independent opinion of an insurer's financial strength and ability to meet its ongoing insurance policy and contract obligations," based on a quantitative and qualitative evaluation of the company's balance sheet strength, operating performance and business profile. AM Best's published methodology also weighs how well the company manages enterprise risk. The analyst looks at surplus relative to the risks the insurer writes, reserve adequacy, reinsurance dependence, investment quality, a multi-year record of underwriting results (see the combined ratio: how insurers make (and lose) money on underwriting), the strength of the franchise and the parent's support.

The rating is a forward-looking judgment about solvency. It is not a score for service, and AM Best says so. The same guide states that ratings do not address an insurer's claims-payment policies or procedures, or its ability to dispute or deny a claim on grounds such as misrepresentation, and that a rating is not a recommendation to buy, hold or terminate any policy. An A++ insurer can still deny your claim under an exclusion. For that side of the picture, see how to judge a business insurance company, which covers complaint data and claims reputation.

The scale

This is the Financial Strength Rating (FSR) scale as AM Best publishes it. The guide's most recent version we could retrieve is dated 2009, and the grades and descriptors are the ones carriers and brokers still use.

Source: AM Best, Guide to Best's Financial Strength Ratings (version 090109, hosted by the State of Nevada).

The plus and minus signs are notches inside a category. A- is the lowest grade in the Excellent category and sits two notches below A+.

Modifiers, outlooks and not-rated codes

Three other pieces of information appear next to the letter, and they matter at renewal.

• Outlook. Positive, negative or stable, assigned to rated companies from A++ to D to show the likely direction over an intermediate term, which AM Best defines as 12 to 36 months. A negative outlook on an A rating is a warning, not a downgrade.
• Under review ("u"). The rating may change in the near term, typically within six months, usually because of a specific event such as an acquisition or a large loss.
• Public data ("pd"). The rating was assigned to an insurer that chose not to take part in AM Best's interactive rating process, so it rests on public information only.
• Not rated (NR-1 to NR-5). AM Best reports on the company but has not assigned a rating. NR-3 means the rating procedure does not apply, NR-4 means the company asked not to be rated.

The Financial Size Category: the Roman numeral

A rating is usually quoted with a size, as in "A- VII" or "A+ XV." The Roman numeral is the Financial Size Category (FSC), which AM Best describes as an indicator of a company's size in terms of its statutory surplus and related accounts. FSC runs from I to XV. Trade press reporting on AM Best category changes puts Class VII at adjusted policyholders' surplus of $50 million to $100 million (F&I Magazine, April 2014), and Class XV, the top category, above $2 billion (Safety National's announcement on reaching XV). Confirm the band for any class on AM Best's current table before you rely on it in a contract.

Size and strength are different questions. Surplus is the cushion that absorbs a bad year, so a large insurer can absorb a loss that would sink a small one, but a large insurer with weak underwriting can still earn a B. Contracts pair the two for that reason.

How contracts use the rating

Landlords, general contractors, lenders and public owners write the minimum into the insurance article of the agreement. Typical wording reads:

"All insurance required herein shall be placed with insurers rated A- VII or better by A.M. Best and authorized to do business in the state where the Project is located."

Read it line by line:

1. "A- VII or better." The carrier needs a Financial Strength Rating of A- or higher and a size category of VII or higher. Both conditions apply. An A+ carrier in Class VI fails, and so does a Class XV carrier rated B++.
2. "By A.M. Best." Other agencies such as S&P, Moody's and Fitch use different scales. A contract that names AM Best will not accept an S&P rating unless it says it will.
3. "Authorized to do business in the state." This is a licensing test, separate from the rating. Some contracts require an admitted carrier, which excludes surplus lines insurers regardless of rating. See admitted vs non-admitted insurers: what the difference means.
4. What the clause leaves out. It often does not say when the rating is measured. Some contracts say "at the time of policy issuance," others require the insurer to keep the rating throughout the term and make you replace coverage after a downgrade. If yours is silent, ask the other party.

Say a 15-person electrical contractor, hypothetically, signs a subcontract requiring A- VII. The contractor's policy was issued by a regional carrier rated A- with a Class VI size, because its surplus is under $50 million. The certificate of insurance goes to the general contractor's compliance team, which rejects it. The fix is not to argue about the carrier's strength. It is to move the account to a carrier that meets both parts, or to ask the general contractor for a written waiver. Run the contract through the contract insurance requirements checker and the Certificate of insurance (COI) review checklist before you bind the policy, not after the certificate bounces. More on how these clauses work is in how to review the insurance requirements in a contract.

Reading the market in 2026

Rating agencies are the early-warning system for insurers under strain, and AM Best's first-half 2026 report on U.S. property and casualty rating actions shows where the strain is. Downgrades were 3.8% of rating actions, down from 6.1% a year earlier, and upgrades were 8.2%, up from 5.5%. Most 2026 downgrades were commercial casualty and commercial auto carriers; over half of downgrades came from weak operating performance and 27.3% from deteriorated balance sheet metrics, mainly adverse reserve development. As of June 30, 2026, 82.3% of U.S. commercial lines writers held a stable outlook, according to Insurance Journal's report of Oct. 2, 2026. AM Best also kept its outlook on the U.S. commercial lines segment at stable in December 2025.

Practically, that means a casualty-heavy or auto-heavy insurer on a negative outlook deserves a second look. Your broker should tell you when a carrier on your program changes outlook, and you should ask at each renewal.

Where ratings fall short

• The rating is on the issuing company. An insurance group has several legal entities, and ratings can differ among them. Check the legal name on the declarations page, not the brand on the marketing material. AM Best codes (g for group, p for pooled, r for reinsured) show when a company's rating rests on its affiliation with others.
• Ratings lag. AM Best updates on a schedule and after events, and an insurer can weaken between actions. That is why outlooks and "under review" flags matter.
• A high rating does not make the claim process pleasant. Nor does it make a policy broad. Read the forms.
• A lower rating is not a warning label. Many specialty and surplus lines insurers are rated A- or B++ and perform well in their niches. A B or below on a liability or workers' compensation policy is worth scrutiny, because those claims can run for years.
• Regulators and guaranty funds are separate protections. States measure solvency with risk-based capital standards, and if an insurer fails, a state guaranty fund pays covered claims up to statutory caps. According to the National Conference of Insurance Guaranty Funds, most states cap property and casualty claims at $300,000, and the caps generally do not apply to workers' compensation. In most states, guaranty funds do not stand behind policies issued by non-admitted (surplus lines) insurers, so the insurer's own strength matters more on those placements; confirm the rule for your state. See what happens when an insurer fails: guaranty funds and business policies.

A short checklist before you accept a carrier

1. Get the exact legal name of the issuing company from the quote and binder.
2. Look up its current FSR, FSC, outlook and any "under review" flag.
3. Compare it with each contract's wording: rating, size, admitted status, and when it is measured.
4. Ask your broker about any downgrade or outlook change in the past 12 months.
5. Keep the rating date in the file so you can show you met the requirement when the policy was bound.

For help weighing several insurers side by side, the compare business insurers puts the insurer profiles side by side.

Key takeaways

• AM Best's Financial Strength Rating is an opinion on an insurer's ability to pay claims in the future; it says nothing about claims service or whether a given claim will be paid.
• B+ and above are "secure." Most commercial contracts require A- with Financial Size Category VII or higher, and both parts must be met.
• Outlook and "under review" flags tell you where a rating may be heading, so check them at every renewal.
• Check the rating of the specific issuing company, not the brand, and measure it against the contract's wording and timing.
• Ratings, regulator solvency rules and guaranty funds are three separate layers of protection, and guaranty funds cap what they pay.