Standard & Poor's Ratings Services today published its criteria for rating insurance companies.
The company comments "The criteria are intended to enhance the transparency of our ratings on insurers worldwide by creating an integrated, globally consistent framework that builds on our existing criteria. The ratings framework includes business risk and financial risk profiles, as well as new rating factors and subfactors to assess the impact of industry and country risks, prospective capital adequacy, and risk position.
Our aim is to transparently disclose rating factors and clearly specify how we use them to evaluate the creditworthiness of insurance companies and arrive at ratings outcomes. Consistent application of these criteria is intended to enhance the forward-looking nature and comparability of our ratings across industry sectors and geographies.
The criteria documents published today are:
-Insurers: Rating Methodology-Shows how eight rating factors determine the stand-alone credit profile(SACP) or group credit profile(GCP).
-Group Rating Methodology-Discusses external support from a subsidiary's parent group, depending on how we classify the subsidiary within five specified "group status" categories, and how issuer credit ratings and financial strength ratings are assigned to operating and holding companies within a group.
-Enterprise Risk Management-Examines how enterprise risk management (ERM) is scored using five subfactors.
-Methodology For Linking Short-Term And Long-Term Ratings For Corporate, Insurance, And Sovereign Issuers-looks at how the descriptor for the insurer's liquidity determined in the rating methodology combines with its long-term rating to determine its short-term rating.
Separately, we will publish a commentary on the Insurance Industry And Country Risk Assessment(IICRA). This will explain how the IICRA provides context for an insurer's business risk profile(BRP), which results from the IICRA and the insurer's specific competitive position assessment by looking at the risks it faces from operating in specific industries and countries. An accompanying list of IICRA scores will also be published.
As previously announced, we expect that a significant majority of our ratings will not change. In cases where ratings will change, it is most likely to be within one notch of the current ratings. Preliminary results suggest that positive rating actions will likely slightly outweigh negative rating actions, and we have not identified any sectors or regions where the distribution of ratings is likely to change significantly.
We are publishing the criteria after extensive consultation with the global insurance market.
We consider that this framework offers a forward-looking structure that provides transparency and comparability to underpin our ratings and ensure they are useful to the market."
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