ARC Ratings publishes updated General Insurance and Reinsurance Companies - Claims Paying Ability Ratings Criteria

London, 29 May 2020 - ARC Ratings, S.A. (“ARC”) has published its General Insurance and Reinsurance Companies - Claims Paying Ability Ratings Criteria. This is an update to the methodology previously published on 31 May 2019. There are no material changes and as such no rating impact. This methodology can be accessed at

ARC’s Claims Paying Ability Ratings are accorded to property and casualty and liability insurers and reinsurers, and give an opinion of an entity’s ability to meet policyholder and related contract obligations, excluding funds where investment or other risk rests with the policyholder through a contractual agreement. The ratings reflect an opinion on the relative financial strength of the entities and do not imply a specific statistical probability of default. The ratings consider the timeliness of payments (allowing for reasonable delays due to industry factors, such as claims investigations and legal disputes), as well as the expected recoveries in the event that payments are interrupted or the insurance company stops payments completely. Ratings are forward looking and represent a view on the company’s creditworthiness over a two to three-year time horizon. The ratings do not directly consider the entity’s quality of service levels or the appropriateness of its product offering, except for these factor’s direct impact on the organisation’s longer-term sustainability.

ARC only assigns International Scale ratings, incorporating all sovereign risk and currency conversion issues, and are thus directly comparable across all countries. The latter are generally required by insurers and reinsurers that issue policies in several different countries and currency denominations. Certain markets may be characterised by inherent limitations that impose a country ceiling on the ratings that can be accorded to entities that operate in these markets.

The Claims Paying Ability Rating forms the basis of ARC’s assessment of insurer and reinsurer credit quality. In many jurisdictions an insurance company’s contractual obligations to policyholders rank senior to all other obligations, and therefore, in these cases, the Claims Paying Ability Rating is the highest rating accorded to an insurance organisation. Claims Paying Ability Ratings are assigned mostly to the operating entities that issue the insurance policy. However, the analysis is not limited to the financial performance of the legal vehicle issuing the policy since in cases of insurance groups, the interaction and integration of the business at group level is an important part of the analysis as well. In turn, the ratings of a company’s debt issues and of the group as a whole are influenced by its creditworthiness in terms of meeting policyholder obligations. Furthermore, a top down approach is applied when assessing the insurance entity’s access to capital and other forms of support from its holding company, where it is important to consider the financial strength of the shareholder and its ability and willingness to provide this support when necessary. This could be done assessing the financial strength of the insurance group (if the insurance entity is part of a group therefore using consolidated financial information) or identifying the ability of the shareholder to inject capital in case of need.

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