NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) published its Global Insurer and Insurance Holding Company Rating Methodology. The methodology describes the major quantitative and qualitative factors KBRA considers when assessing the financial strength of life/health and property/casualty insurance companies.
KBRA’s general approach for analyzing insurers includes a comprehensive evaluation of key quantitative measures as well as qualitative elements encompassing three rating determinants: balance sheet management, operating fundamentals, and company profile & risk management. KBRA will typically seek to engage in a dialogue with company management to enhance its understanding of the qualitative determinants.
- In Determinant 1, KBRA examines the insurance company’s approach to managing its balance sheet – the starting point of which is capital. The quality of capital stems from a variety of factors including the creditworthiness of the company’s assets and asset valuations; intangibles and potential for write-offs; reserve adequacy and counterparty exposure.
- In Determinant 2, KBRA reviews the organization’s operating fundamentals, including historical earnings trends, various profitability ratios, financial projections and earnings diversification. Additionally, KBRA will evaluate an insurer’s exposure to event risk and assess its ability to manage catastrophe risk, which is part of an enterprise’s overall risk management program.
- In Determinant 3, KBRA considers the quality of a company’s management team, its strategic direction, current and future market position, franchise value, distribution profile and risk management framework.
Additionally, KBRA may apply a series of stress tests in order to incorporate potential, forward-looking risk scenarios.
KBRA will assign ratings to life/health and property/casualty companies – including reinsurers – utilizing its insurance financial strength rating (IFSR) scale. The IFSR reflects the likelihood of an insurer meeting its senior-most financial obligations, which typically are to its policyholders. Additionally, KBRA will assign ratings to debt instruments (typically in the form of surplus notes) issued by insurance operating companies using its long-term credit rating scale.
Although clearly related to an IFSR, the assignment of a rating to an insurance holding company (IHC) involves a separate process, which is also explained in the methodology. The issuer rating for an IHC as well as the issue ratings on holding company long-term debt obligations will utilize KBRA’s long-term credit rating scale. Short-term debt obligations will be based off of the short-term credit rating scale. For information on KBRA’s rating scales, please see KBRA’s Rating Scales and Definitions.
Please use the following link to access the methodology: https://www.krollbondratings.com/show_report/3966.