Weiss Insurance Ratings
Weiss Insurance Ratings are safety ratings based on three separate models, each designed to evaluate the financial viability of companies in one of three sectors: (1) life and annuities, (2) health, and (3) property and casualty. Each safety rating is based on hundreds of factors synthesized into five indexes: capitalization, investment safety (or reserve adequacy for property and casualty insurers), profitability, liquidity and stability.
The data are derived from annual and quarterly financial statements obtained from state insurance commissioners and may also be supplemented by information that we request from the insurance companies directly.
However, if an insurer chooses not to provide supplemental data, we reserve the right to assign it a rating based exclusively on publicly available data.
A weak score on any one index can result in a low rating, as financial problems 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. Details on each index are below.
Our Insurer Capital Index evaluates 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.
Our Insurer 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.)
Our Insurer 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.)
Our Insurer 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 (life, health and annuity companies only); and 5) expenses in relation to industry norms for the types of policies that the company offers.
Our Insurer Liquidity Index evaluates 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.
Our Insurer Stability Index integrates a number of sub-factors that affect consistency (or lack thereof) in maintaining financial strength over time. These sub-factors 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.
In order to help guarantee our objectivity, we reserve the right to publish ratings expressing our opinion of a company's financial stability based exclusively on publicly available data and our own proprietary standards for safety.
Insurance Rating Definitions:
A Excellent. This insurance 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. This insurance 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. This insurance 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. This insurance company currently demonstrates what we believe to be significant weaknesses which could negatively impact policyholders. In an unfavorable economic environment, these weaknesses could be magnified.
E Very Weak. This insurance company currently demonstrates what we believe to be significant weaknesses and has also failed some of the basic tests that we use to identify financial stability. Therefore, even in a favorable economic environment, it is our opinion that policyholders could incur significant risks.
F Failed. This insurance company is deemed failed because of one or more of the following conditions: 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 in the upper third of the letter grade.
- The minus sign is an indication that the company is in the lower third of the letter grade.
U Unrated. The company may be unrated for several reasons including (1) total assets under $1 million; (2) premium income for the current year under $100,000; or (3) the company functioning almost exclusively as a holding company rather than as an underwriter; or, (4) information that we believe to be insufficient to reliably issue a rating.
