Abstract
Moody 's non-life ratings are done by a careful evaluation of the capital markets and the trends manifested in the same. Moody follows the “expected loss rate” model, which seems to be the right approach of the company seeing the manner in which the players of the market behave.
Moody 's non-life ratings refer to the ratings, which the company assigns to financial instruments other than life insurance. The company provides ratings of firms providing insurance coverage to the investment tools of the capital markets. Moody 's non-life ratings pertaining to bonds take into account several features like:
Financial strength
Severity of the loss (apprehended)
Default frequency
Risk transition
Credit quality
With the evolution of the capital markets over the years, Moody 's non-life ratings lay more stress on the “expected loss rate”. Moody as a measurement of credit quality uses this.
The ratings of Moody Investor Services suggest the financial health of a company offering insurance coverage to policyholders. It evaluates the financial readiness of that company in making payments for the claims filed by the policyholders in the time of need.
The techniques adopted by the players of the capital markets and also the type of products prevailing in the capital markets have greatly influenced the manner in which Moody 's handle their business in the non life insurance rating sector.
While on one hand, there are insurers who have a tendency to opt for credit improvement pertaining to asset backed securities, on the other hand there are insurers who tend to displace reinsurance with the help of bonds. These events have greatly shifted focus on Moody 's financial strength ratings pertaining to the instruments of the capital markets and also the alternative instruments, which compete with the same. Therefore, few are of the opinion that under these circumstances, following the “expected loss rate model” is not too bad.
Moody 's non life ratings help insurance companies to understand or relate the strategies pertaining to the financial structure existing in the capital markets and also have a notion as to how these strategies may impact capitalization as well as financial results in the near future. In a nutshell, the strategy adopted by Moody in rating the non-life instruments is determining “probability of ruin”.