S&P introduces new factor for ratings assessment

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Firm to consider country risk in evaluation process

Standard &Poor’s (S&P) a leading credit firm that provides ratings for the world’s insurance companies, has announced that it will begin considering country risk when evaluating insurers. Country risk refers to the risks associated in investing in certain countries. These risks can change depending on economic climate, the state of a country’s various businesses, and numerous political factors. The changes to the firm’s evaluation process will affect all lines of insurance and will be used to issue revised ratings to insurance companies.

Assessment criteria to be based on those that exist in the banking industry

S&P’s country risk assessment plan will be based upon one that exists for the banking industry. Called the Insurance Industry Country Risk Assessment, the plan will address the various risks that are associated with insurers operating in other countries and throughout various industries. The firm believes that the insurance industry is less susceptible to systemic issues, making it a prime candidate for the country risk assessment plan. The assessment will have less of an impact on the insurance industry because the industry is not seen as susceptible to these changes.

Country risk to be one of many factors that determines rating

Country risk will be associated with S&P’s “business risk profile.” This profile will be used to determine an insurance company’s competitive position in its given sector. The business risk profile will be augmented by the “financial risk profile,” which analysis the financial flexibility of a company and its ability to adapt to economic changes. Country risk will be a part of numerous factors that determines an insurance company’s rating.

Majority of insurers not expected to be affected by change

The firm believes that the majority of large insurance companies will not be affected by the changes in its evaluation protocols. S&P notes that its latest changes are designed to bring more transparency to its rating system, allowing the ratings it issues to insurers to be on par with those issued by other credit organizations. The country risk assessment criteria are expected to be published at the end of this year or in early 2013.

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