Abstract: In this paper we will discuss the rating methodology of A.M Best Company Inc. for the health insurance carriers, for example, health insurance companies, health maintenance firms etc.
The A.M Best Company Inc.'s, a credit rating agency, health insurance ratings depict the picture of the financial strength of several health insurance carriers like, traditional health insurance firms, Blue Cross health maintenance organizations etc. These ratings also reflect the organizations' ability to meet the upcoming obligations to the health insurance policyholders and soundness of their risk management framework.
Rating Criteria:
A.M Best usually sets these ratings by examining several issues. These are discussed below.
(1)The capital adequacy of the health insurance company is examined thoroughly, that is, if the flow of capital is streamlined and the company has enough capital to finance its operating practices or not.
(2)A.M Best examines whether or not the health insurance carrier will be able to meet the present as well as upcoming obligations to the insurance policy holders.
(3)The company’s reserve level is examined carefully, for it is considered as a risk factor. A.M Best also throughly checks the asset quality.
(4)Another important thing is the reinsurance program. A.M Best examines that whether the health insurance carrier's debt is on the same level with the capital amount.
(5)A.M Best inspects the health insurance company's income from investments. Those companies are rated highly who focus more on liquidity rather than generating more revenue.
(6)The business profile of the company is examined as well. Those companies who have a rich business profile are rated highly.
(7)A.M Best examines the product diversity and operating environment of the health insurance carriers.