S&P Claims Paying Ability Rating

The S&P claims paying ability rating signifies the likelihood an insurance company can pay claims to its customers. This rating from S&P Global Ratings tells existing and prospective policyholders how financially strong an insurer is.

Health maintenance organizations (HMO) and similar health plans also receive S&P claims-paying ability ratings.

Consumers should not view the S&P claims paying ability rating as an indicator of a company's suitability for their needs or the company's likelihood to deny claims. The score only indicates whether the insurer has sufficient liquid assets to pay claims.

The strongest S&P claims paying ability rating is AAA (extremely strong). Just below that are AA (very strong) and A (strong). The lower the insurer’s score, the more likely that adverse business conditions will damage its claims-paying ability. BBB is also considered a good rating. Below BBB, companies are thought to be vulnerable in a manner that may outweigh their strengths. 

The S&P warns consumers to avoid buying policies from insurers rated at BB or lower. Still, other rating agencies advise against purchasing a policy from an insurer whose rating is less than an A-.

Adding a plus (+) or minus (-) to ratings from AA to CCC allows the comparison of one insurer’s strength relative to another in the same rating category. The worst strength rating is an R, meaning the company’s financial condition has deteriorated to the point that it is under regulatory supervision. Scores of SD or D imply the insurer is likely to default on some, or all, of its policy obligations. 

Consumers should review their insurers’ financial strength ratings annually to ensure they remain strong.

The S&P is one of four companies that rate the financial strength of insurance companies. Other rating agencies include A.M. Best, Fitch, and Moody’s. Each agency has its rating scale and a various number of rating categories on which it grades an insurer.

As consumers compare ratings from various agencies, it is good to keep in mind that while they may appear the same, the score will have different meanings from different agencies.

Each agency may evaluate an insurer’s financial strength differently. Consumers are advised to review the opinions of at least two rating agencies. The score should come directly from the rating agency, not from the insurance company. The ratings advertised on insurance companies’ websites may be outdated or paint an overly favorable picture. For example, an insurance company’s marketing materials might only contain Moody’s rating because that rating is the highest and omit the lower A.M. Best rating.

Rating agencies weigh many factors in the evaluation of an insurer’s financial strength. One of the most critical elements to the consumer is the company's potential exposure to catastrophic events with the possibility of numerous simultaneously filed claims, which would strain the company's ability to pay.

Other graded factors include the market position in the country of operation, existing regulatory challenges, and current interest rate impact on the insurer's finances. Additional considerations include a company’s capital adequacy ratio (CAR), annual company earnings, yields on investments, liquidity, and sales growth.