Duff & Phelps Adds 'Consolidated' To Its Ratings Categories

Duff & Phelps Credit Rating Co.'s Insurance Ratings Group announced that it is introducing a new concept in insurance industry ratings—the 'Consolidated Claims Paying Ability Rating' (Consolidated CPA). The introduction of the Consolidated CPA is in response to the rapid consolidation in all sectors of the insurance industry, as well as the globalization of insurance markets and the increasing number of large, highly complex international insurance and reinsurance groups.

Unlike traditional CPA ratings, which are assigned to individual insurance companies, the Consolidated CPA reflects DCR`s opinion of the theoretical financial strength of all insurers within an insurance group on a combined basis. The rating provides users with an indication of the financial health and long-term viability of the group as a whole, and the potential ability of the group to support and enhance the claims paying ability of its individual insurance company members.

Accordingly, the Consolidated CPA acts as a reference rating supporting DCR's traditional CPA ratings of individual insurers in the group. "As a reference rating, the Consolidated CPA will allow DCR to provide the type of broad overview opinions on large insurance groups that sophisticated users of ratings are increasingly requesting," says Keith M. Buckley, senior vice president of DCR's property and casualty ratings unit.

"DCR's ability to speak to the overall financial viability of a large, complex group is becoming very important in a consolidating and increasingly global insurance sector. Insurance groups can have dozens of subsidiaries operating across numerous countries and domiciles, and the Consolidated CPA can tell the user how the strengths and weaknesses of these entities all come together," Buckley adds.

DCR will also continue to assign traditional CPA ratings to the individual members of the group, allowing for a unique 'dual' ratings approach.

"It is very important for users to recognize that not all companies in an insurance group may share or have equal access to the overall resources of the group as a whole. This could be due to either external barriers, such as regulatory restrictions on the movement of capital, or an unwillingness of management to divert group resources to certain non-core, or non-strategic subsidiaries," adds Julie A. Burke, senior vice president of DCR's Life/Health ratings unit. "DCR's new dual ratings approach of assigning both consolidated and individual company CPA ratings reflects the best of both worlds in the context of a large, complex group. DCR can now indicate both the strength of the overall group, and identify which individual members of the group have full or partial support of the group, and which ones stand on their own."

DCR's ratings methodology is detailed in a new special report entitled DCR's Approach to 'Group' Insurance Ratings.