Insurer Financial Strength Ratings Definitions
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| Publication Date: May 17, 2002 05:00 Europe/London |
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Untitled Document
Insurer Financial
Strength Ratings
An insurer rated ‘BBB’ or higher is regarded as having financial security
characteristics that outweigh any vulnerabilities, and is highly likely to have
the ability to meet financial commitments.
AAA
An insurer rated ‘AAA’ has EXTREMELY STRONG financial security characteristics.
‘AAA’ is the highest Insurer Financial Strength Rating assigned by Standard &
Poor’s.
AA
An insurer rated ‘AA’ has VERY STRONG financial security characteristics,
differing only slightly from those rated higher.
A
An insurer rated ‘A’ has STRONG financial security characteristics, but is
somewhat more likely to be affected by adverse business conditions than are insurers
with higher ratings.
BBB
An insurer rated ‘BBB’ has GOOD financial security characteristics, but is
more likely to be affected by adverse business conditions than are higher rated
insurers.
An insurer rated ‘BB’ or lower is regarded as having vulnerable characteristics
that may outweigh its strengths. ‘BB’ indicates the least degree of vulnerability
within the range; ‘CC’ the highest.
BB
An insurer rated ‘BB’ has MARGINAL financial security characteristics. Positive
attributes exist, but adverse business conditions could lead to insufficient ability
to meet financial commitments.
B
An insurer rated ‘B’ has WEAK financial security characteristics. Adverse
business conditions will likely impair its ability to meet financial commitments.
CCC
An insurer rated ‘CCC’ has VERY WEAK financial security characteristics,
and is dependent on favorable business conditions to meet financial commitments.
CC
An insurer rated ‘CC’ has EXTREMELY WEAK financial security characteristics
and is likely not to meet some of its financial commitments.
R
An insurer rated ‘R’ is under regulatory supervision owing to its financial
condition. During the pendency of the regulatory supervision, the regulators may
have the power to favor one class of obligations over others or pay some obligations
and not others. The rating does not apply to insurers subject only to nonfinancial
actions such as market conduct violations.
NR
An insurer designated ‘NR’ is NOT RATED, which implies no opinion about the
insurer’s financial security.
Plus (+) or minus (-)
Ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus or minus
sign to show relative standing within the major rating categories.
CreditWatch highlights the potential direction of a rating, focusing on identifiable
events and short-term trends that cause ratings to be placed under special surveillance
by Standard & Poor’s. The events may include mergers, recapitalizations, voter
referenda, regulatory actions, or anticipated operating developments. Ratings
appear on CreditWatch when such an event or a deviation from an expected trend
occurs and additional information is needed to evaluate the rating. A listing,
however, does not mean a rating change is inevitable, and whenever possible, a
range of alternative ratings will be shown. CreditWatch is not intended to include
all ratings under review, and rating changes may occur without the ratings having
first appeared on CreditWatch. The “positive” designation means that a rating
may be raised; “negative” means that a rating may be lowered; “developing” means
that a rating may be raised, lowered or affirmed.
‘pi’ Ratings, denoted with a ‘pi’ subscript, are Insurer Financial Strength
Ratings based on an analysis of an insurer’s published financial information and
additional information in the public domain. They do not reflect in-depth meetings
with an insurer’s management and are therefore based on less comprehensive information
than ratings without a ‘pi’ subscript. ‘pi’ ratings are reviewed annually based
on a new year’s financial statements, but may be reviewed on an interim basis
if a major event that may affect the insurer’s financial security occurs. Ratings
with a ‘pi’ subscript are not subject to potential CreditWatch listings.
Ratings with a ‘pi’ subscript generally are not modified with ‘+’ or ‘-‘
designations. However, such designations may be assigned when the insurer’s financial
strength rating is constrained by sovereign risk or the credit quality of a parent
company or affiliated group.
National Scale Ratings, denoted with a prefix such as ‘mx’ (Mexico) or ‘ra’
(Argentina), assess an insurer’s financial security relative to other insurers
in its home market. For more information, refer to the separate definitions for
national scale ratings.
Quantitative Ratings, denoted with a ‘q’ subscript, were discontinued in
1997. The ratings were based solely on quantitative analysis of publicly available
financial data.
Short-Term Insurer Financial Strength Ratings
Short-Term Insurer Financial Strength Ratings reflect the insurer’s creditworthiness
over a short-term time horizon.
A-1
An insurer rated ‘A-1’ has a STRONG ability to meet its financial commitments
on short-term policy obligations. It is rated in the highest category by Standard
& Poor’s. Within this category, certain insurers are designated with a plus sign
(+). This indicates that the insurer’s ability to meet its financial commitments
on short-term policy obligations is—EXTREMELY STRONG.
A-2
An insurer rated ‘A-2’ has a GOOD ability to meet its financial commitments
on short-term policy obligations. However, it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than insurers
in the highest rating category.
A-3
An insurer rated ‘A-3’ has an ADEQUATE ability to meet its financial commitments
on short-term policy obligations. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened ability of the insurer to
meet its financial obligations.
B
An insurer rated ‘B’ is regarded as VULNERABLE and has significant speculative
characteristics. The insurer currently has the ability to meet its financial commitments
on short-term policy obligations; however, it faces major ongoing uncertainties
which could lead to the insurer’s inadequate ability to meet its financial obligations.
C
An insurer rated ‘C’ is regarded as CURRENTLY VULNERABLE to nonpayment and
is dependent upon favorable business, financial, and economic conditions for it
to meet its financial commitments on short-term policy obligations.
R
See definition of “R” under Long-term Ratings.
Plus (+) or minus (-)
Ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus or minus
sign to show relative standing within the major rating categories.
Standard & Poor’s ratings and other assessments of creditworthiness and financial
strength are not a recommendation to purchase or discontinue any policy or contract
issues by an insurer or to buy, hold, or sell any security issued by an insurer.
In addition, neither a rating nor an assessment is a guaranty of an insurer’s
financial strength.
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