AM Best has assigned a Financial Strength Rating of A- (Excellent) and a Long-Term Issuer Credit Rating of “a-” (Excellent) to startup Next Insurance US Co., headquartered in Palo Alto, California. The outlook assigned to these ratings is stable.

The ratings agency said its ratings reflect the carrier’s balance sheet strength, which its analysts assess as “very strong,” as well as its “adequate operating performance, limited business profile and appropriate enterprise risk management.”

AM Best said the ratings also reflect Next US’ “strongest level of projected risk-adjusted capitalization,” as measured by Best’s Capital Adequacy Ratio, and a sound business plan that is expected to take advantage of the sizable small- and medium-size business market. Under the business plan, the company will seek to build a “geographically diversified book of business that will be sourced through direct channels, independent agents and partnerships through an affiliated agency,” AM Best said.

The company uses an online platform that leverages artificial intelligence and machine learning. AM Best said it believes that the company’s existing relationships and distribution channels will be fundamental in gaining the projected scale in the market.

The ratings also consider the execution risk inherent in start-up organizations and the potential challenges management faces to execute on the business plan. While the company’s innovative platform and existing relationships are anticipated to meet projections effectively, the scaling of operations may present challenges in gaining traction and achieving the planned profitable results, AM Best said.

Next Insurance Makes Room for Agents After All

InsurTech Next Insurance Transforms From Digital Agency to Carrier

Next began as a managing general agency in 2016 and became a carrier in 2018, targeting small and medium businesses. Since 2016, it has raised $881 million in funding.

Next has made some acquisitions, including AP Intego, a Massachusetts-based digital agency providing affinity small commercial insurance products, and Juniper Labs, a provider of alternative open data and underwriting technology, with a goal of improving its workers’ compensation offering.

Depending on state and line of business, Next issues policies by either Next Insurance US Company, which is also rated “A” Exceptional by Demotech, or by State National Insurance Co., rated “A” by AM Best.