Fitch’s insurance company ratings are performed by a staff of trained analysts who review each company on several factors including the ability to meet commitments such as interest and dividend payments, the company’s ability to withstand a major surge in claims, and how well the company has performed economically. Ratings are performed regularly and may be adjusted any time there is any major financial activity with the company.
Fitch Letter Gradations
|AAA||Highest credit quality||Denotes the lowest expectation of default risk.|
|AA||Highest credit quality||Denote expectations of very low default risk.|
|A||Highest credit quality||Denote expectations of low default risk|
|BBB||Highest credit quality||Indicate that expectations of default risk are currently low|
|BB||Speculative||Indicate an elevated vulnerability to default risk,|
|B||Speculative||Indicate that material default risk is present, but a limited margin of safety remains|
|CCC||Substantial credit risk||Indicates default is a real possibility.|
|CC||Substantial credit risk||Indicates default is a real possibility.|
|C||Substantial credit risk||Default is imminent or inevitable, or the issuer is in standstill.|
|RD||Substantial credit risk||Denotes that Fitch’s opinion of the company is that they have experienced an uncured payment default on a bond, loan or other material financial obligation but has not yet entered bankruptcy.|
|D||Default||Indicates that Fitch’s opinion is that the company has entered into bankruptcy or has ceased business operations.|
These grades are the letters grades of AAA, AA, A, and BBB. They represent the highest and most dependable scores available, and reflect a business that is on a sound financial foundation. For the laymen, “investment grade” simply indicates a company with a low to moderate credit risk.
Speculative grades are the letter grades of BB, CCC, CC, and D. As the grades move down progressively from BB, the financial security of the company is more and more troubled or the creditworthiness of the company is in serious financial doubt. Speculative grades are not the best choice for purchasing long term insurance or other financial contracts.
Companies that have an NR have not been rated. These companies may be subsidiaries of larger companies which have been rated or may themselves own smaller, already rated institutions. In some cases, parts of the company have been rated but full access to the necessary information prevented making a complete rating. While there is nothing to say that a Non-rated company is a bad investment, the best advice is to stick with higher rated insurers.
Fitch Grades Risk
Where some ratings companies issue grades based on many different financial factors, Fitch’s uses the financial information available to grade the risk associated with issuing credit to the company. Rather than being a definitive guide to which companies are safe to work with, Fitch’s provides a rating based on the perceived risks of such investments.