25 years: Treasury & ratings
Gurdip provides an insight into the general approach taken by agencies for rating insurance companies. Each of Moody’s, S&P and Fitch assess the operating environment, business profile and financial profile of insurance companies by scoring and then combining credit factors to arrive at a standalone rating.
Gurdip provides an insight into the general approach taken by agencies for rating insurance companies. Each of Moody’s, S&P and Fitch assess the operating environment, business profile and financial profile of insurance companies by scoring and then combining credit factors to arrive at a standalone rating.
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16 mins 47 secs
Each of Moody’s, S&P and Fitch assess the operating environment, business profile and financial profile of insurance companies by scoring and then combining credit factors to arrive at a standalone rating. Furthermore all three agencies use peer group analysis as a check on their final rating.
Key learning objectives:
Outline the different methodologies used by the three rating agencies
Identify types of credit factors used in rating methodologies
Understand an IICRA score
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Each agency methodology has a credit factor focusing on capital. When they assess this factor, they are evaluating the level of capital that an insurance company has compared to the risk profile of the company – the greater the surplus, the stronger the factor.
Moody’s uses a scorecard in which the credit factors are each scored and then a weighted average score is produced which is mapped to a Financial Strength Rating.
Unlike Moody’s, S&P doesn’t use a scorecard but instead aggregates the credit factors using the 7 main credit factors:
The IICRA score represents the level of risks that an insurer faces from the environment in which it operates and is scored from ‘very low’ to ‘very high’.
Fitch’s approach is more like Moody’s in that firstly its main credit factors are scored from AAA to single B and then are then weighted to produce a weighted average overall standalone rating. However unlike Moody’s the weightings for the credit factors are not specified as percentage weights in the published criteria but instead Fitch uses a broader scale to show the importance of each credit factor for the rating using a three level influence score:
Business Profile, Capitalisation & Leverage and Financial Performance & Earnings.
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