Insurance Rating Definitions and Rating Scale

The Insurer Financial Strength Rating (IFSR) provides a forward-looking opinion of an insurer’s capacity and willingness to pay its valid insurance contract obligations when they become due. An IFSR is not specific for any particular policy or product, nor does it address non-policy obligations. IFSRs take into account the standalone assessment of an insurer, as well as the likelihood that the entity would receive external support in the event of financial difficulties.

IFSRs are generally local currency ratings as an insurer’s business activities are usually carried out within national borders. In accordance with CI’s ratings architecture, this means that in determining the IFSR we take into account the insurer’s capacity and willingness to meet policyholder obligations regardless of the currency in which those obligations are denominated, absent transfer and convertibility (T&C) risk. CI would generally only consider assigning foreign currency ratings to internationally active insurers, in which case we would also assess T&C risk.

An IFSR is generally a long-term rating, as an insurer’s contract obligations are generally long-term. However, where an insurer’s contractual obligations have durations shorter than one year, CI may also assign a short-term IFSR.

The rating scales below may apply to local and foreign currency IFSRs.

Long-Term Insurer Financial Strength Ratings

Investment Grade
AAA	The highest credit quality. Exceptional capacity for fulfilment of insurance obligations and most unlikely to be affected by any foreseeable adversity. Extremely strong financial condition and very positive non-financial factors.
AA	Very high financial strength. Very strong capacity for fulfilment of insurance obligations. Unlikely to have payment problems over the long term and unquestioned over the short and medium term. Adverse changes in business, economic and financial conditions are unlikely to affect the entity significantly.
A	High financial strength. Strong capacity for fulfilment of insurance obligations. Possesses many favourable financial security characteristics but may be slightly vulnerable to adverse changes in business, economic and financial conditions.
BBB	Good financial strength. Satisfactory capacity for fulfilment of insurance obligations. Acceptable financial security characteristics but some vulnerability to adverse changes in business, economic and financial conditions. Medium grade credit characteristics and the lowest investment grade category.

Speculative Grade
BB	Speculative grade financial strength. Capacity for fulfilment of insurance obligations is vulnerable to adverse changes in internal or external circumstances. Financial and/or non-financial factors do not provide significant safeguard and the possibility of investment risk may develop.
B	Significant risk to financial strength. Capacity for fulfilment of insurance obligations is very vulnerable to adverse changes in internal or external circumstances. Financial and/or non-financial factors provide weak protection; high probability for investment risk exists.
C	Substantial risk to financial strength is apparent and the likelihood of default is high. Considerable uncertainty as to the payment of insurance obligations. Financial strength is of poor standing with financial and/or non-financial factors providing little protection.
RS	Regulatory supervision. The insurer is under the regulatory supervision of the authorities due to its weak financial condition. The likelihood of default is extremely high without continued external support.
SD	Selective default. The insurer has failed to service one or more class of insurance obligations, but CI believes that the default will be restricted in scope and that the insurer will continue honouring other obligations.
D	The insurer has defaulted on all, or nearly all, of its insurance obligations. A ‘D’ would also be assigned upon filing for bankruptcy or similar protection.

Short-Term Insurer Financial Strength Ratings

Investment Grade
A1	Superior financial strength. Highest capacity for the payment of short-term insurance obligations that is extremely unlikely to be affected by unexpected adversities. Institutions with a particularly strong credit profile have a “+” affixed to the rating.
A2	Very strong capacity for payment of insurance obligations but may be affected slightly by unexpected adversities.
A3	Strong capacity for payment of insurance obligations that may be affected by unexpected adversities.

Speculative Grade
B	Adequate capacity for payment of insurance obligations that could be seriously affected by unexpected adversities.
C	Inadequate capacity for payment of insurance obligations if unexpected adversities are encountered in the short term.
RS	Regulatory supervision. The insurer is under the regulatory supervision of the authorities due to its weak financial condition. The likelihood of default is extremely high without continued external support.
SD	Selective default. The insurer has failed to service one or more class of insurance obligations, but CI believes that the default will be restricted in scope and that the insurer will continue honouring other obligations.
D	The insurer has defaulted on all, or nearly all, of its insurance obligations. A ‘D’ would also be assigned upon filing for bankruptcy or similar protection.

CI Ratings appends "+" and "-" signs to its long-term ratings in the categories from "AA" to "C" to indicate a more granular view of the strength and weaknesses of a particular rated entity.

Outlook: expectations of improvement, no change or deterioration for an insurer’s long-term rating over the 12 months following its publication are denoted ‘Positive’, ‘Stable’ or ‘Negative’.