“I don’t know the key to success but the key to failure is to try to please everyone.” Bill Cosbyworkers compensation

What do the following insurance carriers have in common?

First Commercial







Liberty Mutual


Each of the above carriers was actively underwriting new or renewal PEO workers compensation programs between 2002 and 2014.  At this writing, the above carriers either no longer entertain PEO business or have simply ceased to exist.

For many PEOs, the ability to provide clients with workers compensation insurance is at the core of their value proposition. The limited number of remaining viable PEO carrier markets may become a business sustainability issue for some PEOs.

Here’s the question:  What type of A.M. Best financial strength rating should our PEO require of our carrier partner?

Here’s the answer: It depends.

The A.M. Best Financial Strength Rating (from the A.M. Best website).  A.M. Best’s Financial Strength Rating (FSR) is an independent opinion of an insurer’s financial strength and ability to meet its ongoing insurance policy and contract obligations. It is based on a comprehensive quantitative and qualitative evaluation of a company’s balance sheet strength, operating performance and business profile.

A.M. Best’s rating system has a proven track record in indicating insurance companies that may, over time, encounter financial difficulties. As such, a Best’s FSR is recognized worldwide as the benchmark for assessing and comparing insurers’ financial strength.

The A.M. Best rating process involves a comprehensive quantitative and qualitative analysis of a company’s balance sheet strength, operating performance and business profile. This includes comparisons to peers and industry standards as well as assessments of operating plans, philosophy and management.

A.M. Best FSRs range from A++ (Superior) to D (Poor).  A.M. Best also assigns the following “outlook” ratings:  Positive, Negative, and Stable (no likelihood of change).

Why a Best’s Financial Strength Rating may be important to Your PEO

For insurance companies, a Best’s FSR is a strategic tool that can enhance consumers’ confidence in the organization’s stability, as well as its attractiveness to investors. A rating also enhances an insurer’s credibility with reinsurers – a valuable resource, particularly for insurers entering new markets.

The importance of an A.M. Best rating to your PEO likely depends on several things.

First, how important is the stability of your workers compensation carrier to your ability to perpetuate your PEO as a business?   If you have had to change insurance carriers (through no fault of your own) you know how difficult and worrisome the process of finding another carrier partner can be.  It’s time consuming, tedious, and can cause concern among your client base.  The transition process can result in rate changes and the unwillingness of the new carrier to accept certain clients within your client base.

Second, what is your PEO’s willingness/ability to assume financial risk? While state guaranty funds process claims on behalf of failed carriers, in the case of large deductible programs, questions remain as to deductible liability and collateral posted by your PEO.  From a pure risk management perspective, the more financial risk your PEO assumes in its workers compensation program structure, the more attuned you should be to the financial strength of your carrier partner.

Finally, depending on the composition of your PEO’s book of business, your client’s clients may require a certain level of A.M. Best rating when awarding job contracts.  It is common for contractors, property management companies, and public entities (among others) to require their vendors to provide proof of workers compensation insurance from an “A-tier” rated carrier.  Sometimes less than “A” rated carriers can provide a workaround by providing evidence of “A” rated reinsurance.

Not all PEOs operate the same way, attract the same clients, or have the same workers compensation program needs.  That said, it is important for a PEO to have the ability to choose its carrier partners.  This ability is earned based on the performance of the PEO’s risk management platform and its financial strength.


Carothers-David-E150David E. Carothers, CSP, ARM is a founding partner of Praxiom Risk Management.  David is based in Tampa, FL but is retained as a strategic advisor to PEO executives nationwide.  To contact David directly you may email him at dcarothers@praxiom-rm.com.   You can also click here to connect with David on Linkedin.