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Extending
Chapter 13: Home
and Automobile Insurance
What
You'll Do and Learn
- You'll
learn how Standard & Poor's analysts rate the financial
strength of insurance companies.
- You'll
review Standard & Poor's ratings definitions for insurers.
Introduction
In
this activity you will learn about financial strength ratings
for insurance companies.
Chapter
Notes
In
Chapter 13 you learned about the importance of purchasing
insurance to protect against possible financial loss due to
accidents, severe weather, or other unexpected events. Insurance
companies issue contracts that are purchased by individuals
through the payment of a regular insurance premium. Each policyholder's
premium is pooled with those of other policyholders and is
invested by the insurer. These investments provide the funds
needed to pay policyholders' future claims. If the amount
of claims on outstanding policies do not exceed the company's
expectations--and if it is able to keep its operating costs
low and to earn a good return on its investments--the insurance
company will remain financially sound.
However,
if claims are much higher than expected, or if other events
result in a shortfall in funds, an insurance company may run
into difficulty meeting all of its obligations. From 1990
to 1995, severe weather in many parts of the U.S. caused significant
property losses that resulted in huge claims against property
and casualty insurers. The large number of claims that they
had to pay financially weakened many companies. This is why
it is important to assess the financial strength of insurance
companies that you do business with.
Independent
companies such as A.M. Best and Standard & Poor's provide
ratings of insurance companies that consumers can use to evaluate
the current financial strength of an individual company.
Site
Notes
Standard
& Poor's ratings service provides financial strength ratings
for many insurance companies, including property and casualty
insurers. These ratings are published in news articles and
are used by insurance agents and individual consumers to assess
the credit quality of an insurance company.
Let
Me Try
Go to the S&P site at www.standardandpoors.com
and then print the Worksheet
activity.
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it free!
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