Property-Liability Insurer Financial Strength Ratings: Differences across Rating Agencies

Abstract

Regulators, investors, consumers, and insurance brokers use insurer financial strength ratings to evaluate the insolvency risk of insurers. This article investigates the factors influencing the decision to obtain a rating or multiple ratings, the determinants of ratings for the three major insurer rating agencies, and reasons for differences in ratings across agencies. This study indicates that insurers obtain ratings to reduce ex ante uncertainty about insolvency risk. It also provides evidence that specific rating determinants and their weights differ across agencies. Evidence of sample selection bias is found only in relation to Best's ratings.

Capital structure and performance of Middle East and North Africa (MENA) banks: an assessment of credit rating

“…According to Pottier and Sommer (1999) and Adams et al (2003), higher growth opportunities are associated with higher credit rating. In the same view, Bouzouita and Young (1998, p. 26) claim that "firms who experience a sustained increase in the level of their surplus are more likely to receive a better rating".…”

The Response of Bond Prices to Insurer Ratings Changes

“…25 A summary of the various credit rating events is reported in Table 1. There are total of 621 credit events in the study sample-260 from A.M. Best, 90 from Fitch Ratings, 104 from Moody's and the remaining 167 from S&P. Events are further categorised according to the 23 Pottier (1998) and Pottier and Sommer (1999). 24 Doherty and Phillips (2002).…”

“…6 Pottier and Sommer (1999). 7 See for example, Pottier and Sommer (1999); Doherty and Phillips (2002); Adams et al (2003); Halek and Eckles (2010). 8 Adams et al (2003).…”

Determinants and Impacts of Internal Credit Rating

“…The first goal of a firm's financing strategy is to achieve the desired rating from one of NRSROs, indicating financial soundness, efficiency of internal control systems and more general managerial competence, providing a good signal to the external environment (e. g. investors) through the level of CR (Cantor, 1994;Gonzalez, 2004). A number of researchers have illustrated the importance of CR in finance (for example, Sherwood, 1976;Kaplan and Urwitz, 1979;Belkaoui, 1983;Ederington et al, 1987;Pottier, 1998;Pottier and Sommer, 1999;Gabbi and Sironi, 2002;Gonzalez, 2004).…”