Here’s what you need to know about this rating system and how it can help you assess insurers.
Company Overview
The credit rating arm of S&P is a subsidiary of its parent organization, S&P Global, once known as The McGraw-Hill Companies. McGraw-Hill’s roots reach all the way back to 1860 when a man named Henry Varnum Poor compiled a guide to help investors vet firms in the then-booming railroad industry. His work to provide transparency made him a pioneer in financial statistics. That legacy continues in 2022. Businesses around the world look to S&P for market data. The company provides credit ratings, investment research, statistical data, and risk evaluation.
How It Works
Standard & Poor’s ratings are used by investors and others to measure a company’s creditworthiness and financial strength. S&P rates firms on how likely they are to honor their debts and obligations. This information is not only helpful for investors, risk managers, and lenders. It can also help as you compare coverages. It can guide you as you think about buying a policy. A good credit rating from S&P shows that the insurer is stable and will honor its obligations when you need to make a claim. S&P gauges many qualities about a company to determine its creditworthiness and financial strength. These assessments include:
Its position in the marketIndustry and country-related risksIts capital and earningsRisk exposureIts funding structureCorporate governanceLiquidity
Standard & Poor’s Ratings
Standard & Poor’s ratings are ranked in letter grades from “AAA” to “D.” Take a look at the chart below for a brief explanation of the letter ratings and what they mean. S&P may add plus (+) or minus (-) signs to imply strengths or flaws within that letter grade. Many factors can cause an insurer’s credit rating to be downgraded. Some of these factors include economic downturns, too narrow of a business focus, and individual debt issues. Business climate changes and regulatory changes can also have an effect. It’s a good idea to check a company’s rating from more than one agency. It will advertise its highest rating. This might not tell the full story. An analyst with one company might catch something that another analyst didn’t.
