What are insurance company ratings used for?

An insurance company's credit rating is used to determine the insurer's ability to fulfill its financial obligations to policyholders, notes Investopedia. However, credit ratings are often subjective and not to be relied on as factual information.

In the United States, four leading rating agencies that analyze the creditworthiness of insurance providers are Standard & Poor, A.M Best, Moody's and Fitch, according to the Insurance Information Institute. Two agencies may use the same rating code but these designations may actually differ in ranking based on the agencies' respective rating scales.

Insurance companies generally feature a higher credit rating received from one agency over the lower rating assigned by another, states Insurance Information Institute. The favorable rating may also be used to attract potential insurance shoppers. Consumers should be aware what these credit ratings actually mean to make informed decisions in choosing insurance companies.