Actuarial Notes

Rating Agency Perspectives on Insurance Company Capital

By Wesley Reynolds, Robert Humphreys, Christine Levett, Yunyou (Clio) Wei and Jialiang (Tony) Shen · Society of Actuaries Research Institute · 2023

Study guides: Exam CFE-101, Exam ILA-201I, Exam ILA-201U

A research paper to aid students and practitioners in understanding how rating agencies affect the insurance industry, dated August 2023. It examines insurer credit ratings, including the rating types, the rating process and the rating scales that four major rating agencies use, and the quantitative capital adequacy tools each agency uses to compare available capital with required capital.

On the syllabus

  • Exam ILA-201I — Management and Evaluation of Life Insurance Risks, outcome 3b; Rating Agency Perspectives on Insurance Company Capital, SOA Research Institute, Aug 2023 (excluding Appendices).
  • Exam ILA-201U — Management and Evaluation of Life Insurance Risks, outcome 3b; Rating Agency Perspectives on Insurance Company Capital, SOA Research Institute, Aug 2023 (excluding Appendices).
  • Exam CFE-101 — Rating Agency Perspectives on Insurance Company Capital, SOA Research, Aug 2023 (excluding Appendices); outcomes 1.3a, 2.2c, 3.3b.

Executive Summary

1 Introduction

  • 1.1 Rating Agencies
  • 1.2 Rating Types
  • 1.3 Rating Process
  • 1.4 Rating Scales
  • 1.5 Insurance Rating Applications

2 Insurance Rating Methodology

  • 2.1 Core Rating Factors
  • 2.2 Additional Factors

3 Insurance Capital Model Methodology

  • 3.1 Rating Agency Capital models
    • AM Best
    • Fitch Ratings
    • Moody's
    • S&P
  • 3.2 Available Capital

4 Acknowledgments

Appendix A Sample Insurer Financial Strength Ratings as of June 1, 2023

Appendix B Metrics

Glossary

References

  • AM Best
  • Fitch Ratings
  • Moody's
  • S&P

About the Society of Actuaries Research Institute

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