Understanding Surety Credit Ratings: A Guide to AM Best Ratings and Their Importance

A surety’s credit rating is a critically important factor when considering a working relationship. Understanding these ratings, especially those from AM Best, can provide valuable insights into a company’s financial strength and stability.

Importance of AM Best Ratings

AM Best, with more than 125 years of experience, specializes in assessing the creditworthiness of insurance companies. Their ratings serve as an industry benchmark for comparing different sureties and making informed decisions.

Components of AM Best Credit Ratings

Financial Strength Rating (FSR): Represents a company's ability to meet claims and obligations. Ratings range from A to D, signified by capital letters with additional gradations communicated with the use of plus or minus signs to indicate the strength level. e.g. A++ or C-. 

Issuer Credit Rating (ICR): Reflects overall creditworthiness, graded from a to c, signified by lower case letters with additional gradations indicated by a plus or minus sign. e.g. a+ or b-. The ICR can be issued on a long-term or a short-term basis. 

A company's long-term ICR is a composite of four key factors, each of which are assessed individually, and when taken together comprise the overall rating. 

  • Balance Sheet Strength - assesses surplus position and investment portfolio results
  • Business Profile - assesses the business line of the company and their competitive status in that marketplace
  • Enterprise Risk Management - assesses infrastructure and framework in place to manage risk, in relation to company size and complexity
  • Operating Performance - defined by profitability driven by underwriting results over time

How AM Best Ratings are Determined

Each year, companies submit detailed financial data to AM Best, which evaluates these metrics to assign ratings. This comprehensive process ensures the accuracy and reliability of the ratings provided.

How do I get a Surety Bond?

Surety bonds are issued by Merchants Bonding Company (Mutual) through insurance agents. Contact your local insurance agent or use our Find an Agent tool. They will guide you through the process, informing you of what documents and information are needed by the surety (Merchants Bonding Company (Mutual)) to underwrite your bond.

What is a Surety Bond?

A surety bond is a three-party agreement that ensures the fulfillment of a commitment or contract. For instance, the surety (Merchants Bonding Company (Mutual)) may provide a surety bond to a construction company (the principal) which is required by the state (the obligee), ensuring the construction company will perform the duties as outlined in the contract. In bonding the construction company, Merchants assumes the risk should the company default or not fulfill their contract. A surety bond is different from traditional insurance in that the principal is obligated to pay back the surety company on any claims paid out.

All information provided is subject to change.