What is the primary purpose of a rating service company such as A.M Best?

• A. Set premium rates
• B. Approve policy forms
• C. Determine financial strength of an insurance company
• D. Regulate policy terms

Answer: (C)

Rating services are about judging an insurer’s financial strength and ability to pay future claims. They analyze things like capital adequacy, liquidity, reserves, earnings, and reinsurance to assign a rating that reflects how likely the company is to meet its obligations. This information helps consumers and agents compare safety and reliability across insurers and can influence decisions about who to buy from or work with. Rates, policy forms, and policy terms aren’t set or approved by rating agencies; premiums are determined by actuarial calculations and filed with regulators, while forms and terms are regulated by state insurance departments. That focus on financial strength and claim-paying ability is what makes a rating service like A.M. Best useful.