1 / 15

DFA vs. the Rating Process Steve Dreyer Managing Director Standard & Poor’s

This article explores the transformation of insurance ratings over the decades, starting from simple ratios in the 1980s to the advent of complex models in the 1990s and beyond. It highlights the factors considered in the rating process and the challenges faced in communicating the benefits of more sophisticated methodologies. The emphasis on capital, bond default rates, and economic assumptions is examined, along with the importance of training, consistency, efficiency, and accuracy in the rating process.

johnniemartinez
Download Presentation

DFA vs. the Rating Process Steve Dreyer Managing Director Standard & Poor’s

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. DFA vs. the Rating ProcessSteve DreyerManaging DirectorStandard & Poor’s

  2. Insurance Ratings: 1980’s Simple, Static Ratios “Non-Directed” Judgement

  3. 1980’s: Simple Ratios TestStandard Premiums / Surplus ……….. less than 3 times Combined Ratio …………… less than 110% Reserves / Surplus …………. less than 3 times Return on Assets …………… above 100 b.p.

  4. 1980’s: Analytical Factors Management Liquidity BusinessReview Capital Industry Risk FinancialFlexibility Earnings

  5. Insurance Ratings: 1990’s Compound Ratios More “Directed” Judgement Quantitative Ratings

  6. 1990’s: Invasion of the Models Capital Model Reserve Model Liquidity Model Earnings Model MBS Model Cat Risk Model

  7. ROA vs. EAR AAA 23 > 100 b.p. AA 36 > 100% A BBB Top 50 Life Insurers

  8. 1990’s: Formalizing the Decision

  9. 1990’s: Analysts Weight Factors Company“A” Company“B”

  10. Insurance Ratings: 2000’s IntegratedModels Fully Focused Judgement

  11. Economic Assumption Sets Industry Conditions Company Ratings

  12. Differences in DFA Application S&PInsurer PurposeEvaluateExperiment InformationSummarizedDetailed EmphasisCapital Assorted

  13. Bond Default Rates CCC B BB A BBB AA /AAA

  14. Caveats... CompoundErrors Complexity Communicating

  15. Benefits... Training Consistency Efficiency Clarity Accuracy

More Related