- 2,346
From InsuranceNewNet
The market dominance and fairness of the world’s oldest credit rating agency, AM Best, has come under fire recently as some insurers have questioned its methods and bemoaned its stranglehold on the industry.
AM Best, which has provided insurance industry credit reviews since 1899, is considered the “gold standard” in ratings, akin to the Good Housekeeping Seal of Approval or a Consumer Reports assessment. But some insurance executives say the agency’s grip on the market and wide consumer acceptance of its brand requires insurers to meet unreasonable standards to receive positive ratings.
“It’s not unlike blackmail,” a top executive at a major insurer who asked not to be named told InsuranceNewsNet. He said his company had to allocate millions of dollars to boost reserves and buy reinsurance at levels he felt were unreasonable or risk being downgraded by AM Best.
Best’s brand is so strong that not seeking a rating from the agency is bound to raise suspicions with lenders and customers, the executive said.
“It also inexplicably ignores material information that the A-CAP Insurers provided that refutes the basis for AM Best’s proposed downgrade,” according to the complaint. “Those errors violate the policies and procedures that AM Best told the world – and the A-CAP Insurers – it would follow.”
Recently, A-CAP and AM Best said they reached a settlement in the legal dispute but neither would comment on the details. Both insurers are still listed as “under review” with “negative implications” on Best’s web site.
“AM Best knows its conduct has fallen far short of its standards,” stated the lawsuit. “And it knows its threatened rating deviates substantially from its past practices. The A-CAP Insurers have repeatedly warned AM Best of the errors and deviations. But instead of fixing those errors and respecting its prior practices, AM Best has refused to meaningfully engage with the A-CAP Insurers.”
More: [EXTERNAL LINK] - AM Best ratings face pushback from some insurers
The market dominance and fairness of the world’s oldest credit rating agency, AM Best, has come under fire recently as some insurers have questioned its methods and bemoaned its stranglehold on the industry.
AM Best, which has provided insurance industry credit reviews since 1899, is considered the “gold standard” in ratings, akin to the Good Housekeeping Seal of Approval or a Consumer Reports assessment. But some insurance executives say the agency’s grip on the market and wide consumer acceptance of its brand requires insurers to meet unreasonable standards to receive positive ratings.
“It’s not unlike blackmail,” a top executive at a major insurer who asked not to be named told InsuranceNewsNet. He said his company had to allocate millions of dollars to boost reserves and buy reinsurance at levels he felt were unreasonable or risk being downgraded by AM Best.
Best’s brand is so strong that not seeking a rating from the agency is bound to raise suspicions with lenders and customers, the executive said.
Lawsuit claimed 'flawed methods'
He is not alone in his feelings. The most notable case occurred this year when Atlantic Coast Life Insurance Company and Sentinel Security Life Insurance Company, both affiliates of insurance investor A-CAP, sued AM Best claiming the agency’s threat to reduce its ratings was “based on flawed methods, improper assumptions, and demonstrably false data.”“It also inexplicably ignores material information that the A-CAP Insurers provided that refutes the basis for AM Best’s proposed downgrade,” according to the complaint. “Those errors violate the policies and procedures that AM Best told the world – and the A-CAP Insurers – it would follow.”
Recently, A-CAP and AM Best said they reached a settlement in the legal dispute but neither would comment on the details. Both insurers are still listed as “under review” with “negative implications” on Best’s web site.
“AM Best knows its conduct has fallen far short of its standards,” stated the lawsuit. “And it knows its threatened rating deviates substantially from its past practices. The A-CAP Insurers have repeatedly warned AM Best of the errors and deviations. But instead of fixing those errors and respecting its prior practices, AM Best has refused to meaningfully engage with the A-CAP Insurers.”
More: [EXTERNAL LINK] - AM Best ratings face pushback from some insurers
