A M Best is dead to me. The venerable (if not venerated) insurance rating service has lost whatever credibility it may have had.
Gee, Henry, what brought that on?
I'm so glad you asked. Propitiously, this morning's mail brought the September issue of Best's Review (a magazine published by the company), and a bonus booklet explaining how carrier ratings are assigned. "The Guide to Understanding Insurance Ratings" is chock full of interesting and potentially useful facts, figures and anecdotes, and provides a glimpse "behind the scenes" of how Best ratings are determined.
The Guide walks folks through the rating process, explaining various tests and thresholds that ultimately determine whether a carrier's an A or an F (or somewhere in between).
Problem is, as late as this summer, Best rated AIG as A+ (Superior). In contrast, as of last December, Weiss Ratings had AIG as a B+; they actually downgraded the carrier some 5 years ago. AIG's problems didn't happen overnight, yet they continued to enjoy one of A M Best's top ratings. Talk about asleep at the switch.
But wait, it gets worse:
Near the beginning of the guide, there are stories of some of the most spectacular and well-known carrier failures in the past 3 decades. The Guide does an admirable job describing the events and factors contributing to these massive failures, but never once mentions the carriers' A M Best rating at the time of, um, fizzlement.
I know, though, that at least two of those listed were A or A+ at the time of their demise.
And what was the most common cause associated with these failures? If you guessed "risky investments" and "too much real estate" you win a cheroot.
Sound familiar?
Believe it or not, it gets even more egregious. See if this rings a bell (from "The Guide to Understanding Insurance Ratings"):
"During the last decade of the ... Century, leading life insurers were enjoying a great accumulation of capital as many smaller rivals went under ... soon the insurance companies were flowing assets ... for large scale ... projects. This move essentially put the insurance companies into the banking business, corrupting the nature of what historically had been a conservative industry.
This relationship between the executives of big life insurance companies and ... Wall Street ... did not go unnoticed ... an investigative committee was formed to examine ... insurance companies and make recommendations for regulatory reform."
Sorry for all the ellipses, but I wanted to make this point: all of the above took place in the early 20th Century, over a hundred years ago. Has anything really changed? Has A M Best learned nothing?!
It would seem so.
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