Abstract: The objective of the insurance rating companies is to rate different companies on the basis of their financial strength. Insurance Ratings can be of different types like Long Term Issue Credit Ratings, Short Term Issue Credit Ratings and Dual Ratings.
Insurance Ratings reflect the financial strength of the companies that are to be rated. There are specific companies, which provide these insurance ratings. These companies offer insurance rating services to not only life insurance companies, but also to those, who provide health insurance policies, property insurance policies and mortgage insurance policies.
The insurance rating companies provide various types of insurance ratings. The most significant of them are the following:
- Long Term Issue Credit Ratings
- Short Term Issue Credit Ratings
- Dual Ratings
- Recovery Ratings
- Insurer Financial Strength Ratings
- Principal Stability Fund Ratings
- Fund Credit Quality Ratings
- Fund Volatility Ratings Here, we will briefly discuss, the principal insurance ratings.
Issue Credit Ratings
Insurance Rating Companies offer Issue Credit Ratings, on the basis of current information, provided by the obligors. But, they also use data, received from other reliable sources. There are some insurance rating companies, which carry out audit in order to provide right insurance rating, but most of the companies depend on unedited financial information. It should be mentioned here, that, Issue Credit Ratings could be changed or withdrawn under certain circumstances. The insurance rating companies provide both Long Term Issue Credit Ratings and Short Term Issue Credit Ratings.
Long Term Issue Credit Ratings
There are certain things that the insurance rating companies consider before determining the Long Term Issue Credit Ratings. First of all, the companies assess the capability and worthiness of the obligor, in order to ensure that the obligor has the capacity to fulfill its’ financial commitments according to the terms and conditions of the obligation. Other than this, insurance rating companies also consider the nature and provisions of the obligation,
Short Term Issue Credit Ratings
Insurance rating companies assign Short Term Issue Credit Ratings to the obligations, which are considered to be short term in their relevant market. Here, by short-term obligations, we mean the obligations, which carry short maturity period, like less than 365 days.