What AM Best Rating Should You Require From Vendors?

Last updated July 2026.

Most US companies require vendors and subcontractors to carry insurance from a carrier rated A- (Excellent) or better with a financial size category of VII or higher by AM Best. That combination is the standard language in commercial subcontracts and leases because it screens out carriers most likely to fail while still leaving a wide market of admitted insurers your vendors can actually buy from.

The rating requirement is the part of an insurance clause almost nobody checks. Teams verify the limits and the endorsements, then accept whatever carrier appears in the top left box of the ACORD 25 without asking whether that company can pay a claim in five years. A certificate from a financially weak insurer is a promise from a company that may not be there when the promise is called.

What is an AM Best rating?

AM Best is a credit rating agency that has specialized in the insurance industry since 1899. It publishes a Financial Strength Rating, which is an opinion about an insurer's ability to meet its ongoing obligations to policyholders. The scale runs from A++ and A+ (Superior), through A and A- (Excellent), B++ and B+ (Good), B and B- (Fair), C++ through C- (Marginal and Weak), down to D (Poor), E (under regulatory supervision) and F (in liquidation).

It is not a credit rating on the insurer's bonds and it is not a measure of customer service. It is a solvency opinion, which is exactly the question a certificate holder cares about: if this vendor injures someone on my property, will the carrier behind that policy pay?

What AM Best rating should you require from vendors?

A- VII is the practical answer for most US businesses. The rating letter and the financial size category do different jobs, and requiring only one of them leaves a real gap.

The financial size category is the piece people forget. It reflects the insurer's reported policyholders' surplus, running from Class I (under 2 million dollars) to Class XV (2 billion dollars and up). Class VII corresponds to roughly 50 to 100 million dollars in surplus. A tiny carrier can hold an A- rating and still be too small to absorb a severe loss year, so pairing the letter with a size floor is what makes the clause meaningful.

Why does the AM Best rating on a certificate of insurance matter?

Because your recovery depends on it. When a subcontractor's negligence causes a loss on your project, the indemnity clause in your contract is only worth as much as the insurer standing behind it. If that carrier is insolvent, the indemnity is a lawsuit against a company with no money, and your own policy absorbs the loss along with the effect on your loss history and future premiums.

State guaranty funds provide a partial backstop for admitted carriers, but they cap payouts (commonly 300,000 dollars per claim, varying by state), take a long time, and generally do not cover surplus lines carriers at all. Treating a guaranty fund as your plan is not a plan.

Where is the AM Best rating on an ACORD 25?

It is usually not printed on the form at all. The ACORD 25 lists each insurer by name and by NAIC number in the INSURER A through F rows on the left side of the certificate. The NAIC number is the identifier you use to look the carrier up. Some agencies add the rating in the Description of Operations box as a courtesy, but there is no dedicated field for it, and you should never assume its absence means anything.

The practical workflow is to pull the carrier name and NAIC number off the certificate, then check the current rating against AM Best's own ratings search, which is free for basic lookups. If you are handling more than a handful of certificates, this is the step that quietly does not happen, which is why it belongs in an automated certificate of insurance verification process rather than a person's memory. Reading the rest of the form correctly matters too, and how to read a certificate of insurance walks through every box.

What if a vendor's carrier is not rated by AM Best?

Unrated is not automatically disqualifying, but it changes the question you are asking. Several categories of legitimate insurer carry no AM Best rating:

• Risk retention groups and captives. Common in trucking, healthcare and some construction trades. Many are financially sound; many are thinly capitalized. They are also exempt from most state guaranty fund protection.
• Reciprocal exchanges and small mutuals. Often regional, often long-established, sometimes rated by a different agency such as Demotech or KBRA instead.
• State funds. State workers compensation funds are frequently unrated because their obligations are backed by statute rather than by a private balance sheet, and they are almost always acceptable.

The reasonable policy is a documented exception process: unrated carriers require sign-off from your risk manager or broker, with a note explaining why the exception was granted. What you want to avoid is an unrated carrier slipping through because nobody looked, and then discovering it during a claim.

Do AM Best ratings change?

Yes, and this is the part that breaks static compliance programs. AM Best affirms, upgrades, downgrades and withdraws ratings continuously, and it places carriers under review with negative implications ahead of a likely downgrade. A vendor whose certificate cleared your A- VII requirement in January can be sitting behind a B++ carrier by October without anything on your file changing.

Anyone tracking more than a few dozen vendors runs into the same problem: the compliance record is a snapshot, and the underlying facts keep moving. Certificates expire, carriers get downgraded, endorsements get dropped at renewal. Practical programs re-check ratings at each certificate renewal at minimum, and monitor the carriers behind their highest-limit exposures more often than that. When your evidence is spread across several inboxes and shared drives, the first fix is usually making every document searchable from one place so the annual review is an afternoon rather than a project.

How to write the rating requirement into your contract

Vague language is unenforceable language. A clause that says "insurance with a reputable carrier" gives you nothing to point at. Working language looks closer to this:

All required insurance shall be placed with insurers authorized to do business in the state where the work is performed and rated no lower than A- with a financial size category of VII or higher in the current edition of A.M. Best's Key Rating Guide. Any insurer not meeting this standard requires prior written approval from Owner.

Three details make that clause work. It names the letter and the size category. It requires the carrier to be authorized in the state of the work, which addresses admitted status separately from financial strength. And it creates an approval path instead of a hard wall, so a good vendor with an unrated captive is not silently non-compliant.

Admitted versus surplus lines: a different question

Financial strength and admitted status are two separate screens and people mix them up constantly. An admitted carrier is licensed by the state and participates in that state's guaranty fund. A surplus lines or non-admitted carrier is not licensed in the state and its policyholders generally get no guaranty fund protection, though the carrier may be perfectly strong and well rated.

For hard-to-place risks such as demolition, roofing, abuse and molestation exposure or environmental work, surplus lines is often the only market available. Rejecting all non-admitted paper means rejecting the vendors you most need coverage from. The workable position is to require the rating floor for everyone, and to accept non-admitted carriers where necessary with the exception documented.

Building the rating check into COI tracking

The check is simple in isolation and impossible at volume without a system: read the carrier name and NAIC number off the certificate, confirm the rating and size category clear your floor, record the date you checked, and re-check at renewal. Doing that by hand for 400 vendors is a week of somebody's life every year.

The same logic applies to the rest of the certificate. Limits, endorsements, expiration dates and carrier strength are four checks that either happen automatically on every certificate or happen inconsistently on some of them. COI compliance software exists to make the whole set automatic, and how to verify a certificate of insurance covers the full verification sequence including confirming the certificate is genuine in the first place.

The short version

Require A- VII or better, write both the letter and the size category into the contract, verify the carrier against the NAIC number on the certificate rather than trusting the name, allow a documented exception path for unrated captives and state funds, and re-check at every renewal because ratings move. It takes about ninety seconds per certificate the first time and roughly zero once it is automated.