Standard & Poor's: Credit Ratings and More

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If you have ever done any research of your insurance company, you may have heard about the Standard & Poor rating. Standard & Poor’s is a highly reputable financial services company and insurance rating organization that has been in business for over 150 years. If your insurance carrier is rated highly by this company, you can be sure it is financially sound.

Company Overview

Standard & Poor’s Financial Services LLC is a subsidiary of The McGraw-Hill Companies and is a world leader in the financial services industry. The company was founded in 1860 by Henry Varnum Poor. Mr. Poor was a pioneer in the financial statistics industry. Businesses all over the world look to Standard & Poor’s for financial market intelligence. The company provides independent credit ratings, investment research, statistical data and risk evaluation. Standard & Poor’s has locations in over 20 countries and is headquartered in New York City.

The company employs more than 10,000 and has a revenue of over $2 billion.

How it Works

Standard & Poor’s is a measure used by financial investors and other market participants around the world to measure a company’s credit worthiness. This information is not only helpful for investors and risk managers, but it can also help you establish the financial stability of an insurance company and give you the information you need when comparing insurance coverage and buying an insurance policy. This is essential information as you want to know your insurance company is financially stable and will be around when you need it.

When Standard & Poor evaluates an insurance company, it looks at the ability to repay creditors and any claims, how the company performs in comparison to other insurance companies, the management style, capital and earnings along with other factors. You can find Standard & Poor’s ratings for many insurance companies and products including:

  • Bond
  • Life/Health
  • Property/Casualty
  • Reinsurance/Specialty

Standard & Poor’s Ratings

Standard & Poor’s ratings are issued in letter grades from “AAA” to “D.” These ratings reflect the company’s credit rating. Here is a brief explanation of the letter ratings and what they mean:

  • “AAA” – This is the highest rating and means the company has a strong financial performance and is able to repay all debts.
  • “AA” – This rating is still very strong, showing the company is performing well financially.
  • “A” – The “A” rating shows a strong capacity for a company to meet its financial commitments.
  • “BBB” – Adequate financial performance but may be adversely affected by economic downturn
  • “BBB-“ – This rating is the lowest grade that will likely be considered by investors
  • “BB+” – Speculative grade, may face adverse market conditions
  • “BB” – This grade shows a company with long-term uncertainty, although current economic condition may be satisfactory
  • “B” – A “B” rating shows a company that is currently meeting financial obligations but is vulnerable to uncertain economic conditions.
  • “CCC” – Vulnerable financial condition
  • “CC” – Highly vulnerable
  • “C” – This is again highly vulnerable (Standard & Poor’s states other aspects involved with this rating but give no specific details.)
  • “D” – Company has defaulted on financial commitments

What the Ratings Mean to Insurance Companies

The Standard & Poor rating, measures one aspect of an insurance company very specifically, its credit-worthiness. Insurance companies hold the Standard & Poor rating in high regard along with ratings from other financial rating organizations such as A.M. Best. If ratings show the company is performing poorly financially, customer confidence could be shaken. Credit-rating is not an exact science and a company’s ratings can fluctuate, even over the period of just a few years. Several factors can cause an insurance company’s credit rating to be downgraded including:

  • Economic downturn
  • Too-narrow of a business focus
  • Individual debt issues
  • Business climate changes
  • Regulatory changes

Additional Services and Analytics for Investment Professionals

In additional to Standard & Poor’s rating services, it also offers additional services and analytics for investment professionals including:

  • Ratings360: An analytical tool that combines credit ratings, risk research and insights
  • Advanced Analytics: Enhanced capital charge analysis applied to a specific division of an insurance company’s operations
  • Fund Volatility Ratings: Predictions and opinions about a fixed-income investment fund’s sensitivity to changing market conditions
  • Synthetic Tranche Recovery Metrics (STRM): A view into recovery possibilities for publicly traded corporate default swap indices under various economic conditions
  • Asset Manager Practices Classification (AMPC): An overview of the quality of an asset management company including management and operational practices
  • U.S. Residential Mortgage Originator Reviews: Standard & Poor’s independent view of a company’s ability to handle the complexity of the demands of originating U.S. residential mortgage loans
  • CLO Tranche Recovery Metrics (CLO TRM): A cash-flow bashed recovery analysis of individual CLO tranches
  • U.S. RMBS Recovery Analytics: Analytic review of the supplementary assets of a security’s recovery prospects in the event of a default

Contact Information

To find out more information about Standard & Poor's ratings, you can visit the Standard & Poor’s Website. To reach the U.S. headquarters office, you may call 212-438-2000.