Insurers will now be considered under a revised set of guidelines when it comes to their ratings. Moody’s Investors Service yesterday announced it updated its rating methodologies for both life and property/casualty insurers nationwide. The official titles are: “Moody’s Global Rating Methodology for Life Insurers” and “Moody’s Global Rating Methodology for Property and Casualty Insurers.”
Moody’s new guidelines are based on its previous methodological, which assessed the credit risk of insurers throughout the recent financial crisis, but now includes refinements based on the experience of the past three years. The rating agency doesn’t expect these revised methodologies to affect insurers’ current ratings.
“The updated global insurance methodologies highlight the key factors that drive our ratings of insurers around the world, maintaining the same framework to assess the insurers’ business and financial profiles,” says Ted Collins, Moody’s group managing director, but adds that they include certain refinements that are intended to more accurately reflect insurers’ creditworthiness going forward.
“As before, the purpose of the published methodologies is to provide consistency and transparency to Moody’s rating process, by identifying and discussing the key factors that explain our insurance financial strength ratings globally,” he continues.
Compared to previous methodologies, Moody’s notes the following changes:
• The inclusion of the insurer’s operating environment with specific accompanying metrics
• The removal, addition and changes to a number of metrics used to analyze the key rating factors of market position, asset quality, capital adequacy, profitability, liquidity and financial flexibility
• Expanded rating ranges for rating categories below “Ba” in the metrics used to analyze key rating factors
Because both life and P&C methodologies apply globally, Moody’s admits they are general in some respects, and not intended to be an exhaustive discussion of all factors that its analysts consider in each insurer’s rating. Regulatory, accounting and product characteristics vary widely from country to country, so Moody’s rating considerations take account of such differences.
Additionally, Moody’s notes one other significant change—the explicit recognition of an insurer’s local operating environment, which, when coupled with the company’s fundamental business and financial credit profile, helps to better explain the agency’s insurance ratings in developing markets.
In total, Moody’s has assigned insurance financial strength (IFS) ratings to 575 insurance companies worldwide. It says its long-term IFS ratings are its opinions of the ability of insurance companies to pay punctually senior unsecured policyholder claims and obligations. Of the rated insurers, 416 (72%) are domiciled in North America, 81 (14%) in Europe, 29 (5%) in Asia Pacific, and 49 (9%) in Other regions (e.g. Latin America).
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