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Insurer and HMO Safety Ratings |
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| Rating |
Definition |
| A |
Excellent. The company offers excellent financial security. It has maintained a conservative stance in its investment strategies, business operations and underwriting commitments. While the financial position of any company is subject to change, we believe that this company has the resources necessary to deal with severe economic conditions. |
| B |
Good. The company offers good financial security and has the resources to deal with a variety of adverse economic conditions. It comfortably exceeds the minimum levels for all of our rating criteria, and is likely to remain healthy for the near future. However, in the event of a severe recession or major financial crisis, we feel that this assessment should be reviewed to make sure that the firm is still maintaining adequate financial strength. |
| C |
Fair. The company offers fair financial security and is currently stable. But during an economic downturn or other financial pressures, we feel it may encounter difficulties in maintaining its financial stability. |
| D |
Weak. The company currently demonstrates what we consider to be significant weaknesses which could negatively impact policyholders. In an unfavorable economic environment, these weaknesses could be magnified. |
| E |
Very Weak. The company currently demonstrates what we consider to be significant weaknesses and has also failed some of the basic tests that we use to identify fiscal stability. Therefore, even in a favorable economic environment, it is our opinion that policyholders could incur significant risks. |
| F |
Failed. The company is
deemed failed if it is either 1) under supervision
of an insurance regulatory authority; 2) in the
process of rehabilitation; 3) in the process of
liquidation; or 4) voluntarily dissolved after
disciplinary or other regulatory action by an
insurance regulatory authority. |
| + |
The plus sign is an indication that the company is at the upper end of the letter grade rating. |
| – |
The minus sign is an indication that the company is at the lower end of the letter grade rating. |
| U |
Unrated Companies. The company is unrated for one or more of the following reasons: (1) total assets are less than $1 million; (2) premium income for the current year was less than $100,000; or (3) the company functions almost exclusively as a holding company rather than as an underwriter; or (4) we do not have enough information to reliably issue a rating. |
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TheStreet.com Safety Ratings represent a completely independent, unbiased opinion of an insurance company's financial safety -- now, and in the future. The ratings are derived, for the most part, from annual and quarterly financial statements obtained from state insurance commissioners. This data is supplemented by information that we request from the insurance companies themselves. Although we seek to maintain an open line of communication with the companies being rated, we do not grant them the right to influence the ratings or stop their publication.
TheStreet.com Safety Ratings are assigned by our analysts based on a complex analysis of hundreds of factors that are synthesized into a series of indexes: capitalization, investment safety (L&H companies only), reserve adequacy (P&C companies only), profitability, liquidity, and stability. These indexes are then used to arrive at a letter grade rating. A good rating requires consistency across all indexes. A weak score on any one index can result in a low rating, as insolvency can be caused by any one of a number of factors, such as inadequate capital, unpredictable claims experience, poor liquidity, speculative investments, inadequate reserving, or consistent operating losses.
The primary components of the TheStreet.com Safety Rating are as follows:
- Capitalization Index gauges capital adequacy in terms of each insurer's ability to handle a variety of business and economic scenarios as they may impact investment performance, claims experience, persistency, and market position. The index combines two Risk-Adjusted Capital ratios as well as a leverage test that examines pricing risk.
- Investment Safety Index measures the exposure of the company's investment portfolio to loss of principal and/or income due to default and market risks. Each investment area is rated by a factor that takes into consideration both quality and liquidity. This factor is measured as a separate index only for life, health, and annuity insurers.
- Reserve Adequacy Index measures the adequacy of the company's reserves and its ability to accurately anticipate the level of claims it will receive. This factor is measured as a separate index only for property and casualty insurers
- Profitability Index measures the soundness of the company's operations and the contribution of profits to the company's financial strength. The profitability index is a composite of five sub-factors: 1) gain or loss on operations; 2) consistency of operating results; 3) impact of operating results on surplus; 4) adequacy of investment income as compared to the needs of policy reserves (L&H companies only); and 5) expenses in relation to industry norms for the types of policies that the company offers.
- Liquidity Index values a company's ability to raise the necessary cash to settle claims and honor cash withdrawal obligations. We model various cash flow scenarios, applying liquidity tests to determine how the company might fare in the event of an unexpected spike in claims and/or a run on policy surrenders.
- Stability Index integrates a number of sub-factors that affect consistency (or lack thereof) in maintaining financial strength over time. These sub-factors will vary depending on the type of insurance company being evaluated but may include such things as 1) risk diversification in terms of company size, group size, number of policies in force, types of policies written, and use of reinsurance; 2) deterioration of operations as reported in critical asset, liability, income and expense items, such as surrender rates and premium volume; 3) years in operation; 4) former problem areas where, despite recent improvement, the company has yet to establish a record of stable performance over a suitable period of time; 5) a substantial shift in the company's operations; 6) potential instabilities such as reinsurance quality, asset/liability matching, and sources of capital; and 7) relationships with holding companies and affiliates.
TheStreet.com Ratings maintains an open-door policy to rated companies and accepts input via mail, fax, phone, or personal visits. If a company feels it has significant additional information it wants to bring to our attention which is not addressed in our quarterly company survey, it is invited to provide that information when responding to the survey or at any other time. However, in the absence of a response from the company to our survey, we reserve the right to publish our rating based exclusively on publicly available data, which we feel is sufficient to derive an accurate rating.
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