Abstract
Insurance financial ratings are important because it gives a clear picture of the financial health of various companies selling insurance policies to people. There are many such companies, which evaluate the insurance companies but in this article detail of rating followed by Standard & Poor has been dealt with.
Insurance financial ratings are important tools for determining the financial health of a company. People usually invest their money in these policies to get adequate returns. There are instances of non-payment when a claimant has applied for one. These non-payments were due to the fact that these insurance companies were not financially sound and had tricked investors into opting for insurance policies of these companies.
Insurance financial ratings are also important because it decides the amount of premium, which is to be paid by the prospective policyholders. Insurance financial ratings also assess the areas covered by the insurance policy.
The companies, which provide insurance coverage, are there fore rated. These ratings are in the form of grades. There are several companies, which rate the insurance companies. Among them, the prominent ones include:
A.M Best
Standard & Poor's
Moody's Investor Services
These three companies are the most prominent insurance financial rating companies. The rating grades of these companies differ from one another and the grades each of these companies use are also different.
In the following paragraphs, the ratings of Standard & Poor's grades and what they actually indicate are provided.
Insurance financial ratings by Standard & Poor:
The following grades are used to rate companies. They are:
AAA:
Indicates a very strong financial status. This is the highest rating of Standard & Poor. The financial status is referred to as “extremely strong”.
AA:
Indicates a “Very Strong” financial health, which is regarded as secured but not as strong as the above.
A:
This rating implies a “Strong” financial status but not completely insulated from the upheavals of the business environment.
BBB:
This grade indicates a “Good” financial soundness of the company providing insurance. However, companies getting this rating are more susceptible to market conditions than its predecessor.
NR:
A company, which has been given this grade, indicates that the company is “NOT RATED”. This grade does not convey any financial status of the company.
BB:
A company with this rating is regarded as having “MARGINAL” financial security. It implies that this company has positive characteristics but is not completely shielded from the changing business environment. Such type of a company may not be in a position to meet the claim requirements.
B:
This grade indicates that the company is “WEAK” as far as solvency is concerned and the company may find it difficult to satisfy the claims of the policyholders should the need arise.
R:
This indicates that the company, which has earned this rating, is under “REGULATORY SUPERVISION” where it is being closely watched for its financial security.
CC:
“EXTREMELY WEAK” financial status is what this grade indicates. In this case too, it is feared that the company will not be able to live up to the financial consignment.
CCC:
An insurance company, which is given this grade after being rated is regarded as “VERY WEAK”. Only under favorable conditions in business this company can shell out the claim amount.
These insurance financial rating companies take into account many parameters while applying grades.