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📋 '''Security rating''' in the insurance industry refers to an independent assessment of an [[Definition:Insurance carrier | insurer's]] or [[Definition:Reinsurer | reinsurer's]] financial strength and ability to meet its ongoing [[Definition:Policyholder | policyholder]] and contractual obligations. Issued by [[Definition:Rating agency | rating agencies]] such as [[Definition:AM Best | AM Best]], [[Definition:S&P Global Ratings | S&P Global Ratings]], [[Definition:Moody's | Moody's]], and [[Definition:Fitch Ratings | Fitch Ratings]], these ratings serve as a shorthand for the creditworthiness and claims-paying reliability of an insurance entity. The term "security" in this context reflects the market's focus on the financial soundness of the entity standing behind a [[Definition:Policy | policy]] or [[Definition:Reinsurance contract | reinsurance contract]] — the party that must be able to pay when a [[Definition:Loss | loss]] occurs.

🔍 Rating agencies evaluate an insurer's [[Definition:Capital adequacy | capital adequacy]], [[Definition:Reserve | reserve]] strength, operating performance, business profile, and [[Definition:Enterprise risk management (ERM) | enterprise risk management]] when assigning a security rating. [[Definition:AM Best | AM Best]], which dominates insurance-specific ratings globally, uses a scale where "A++" (Superior) represents the highest financial strength, while lower ratings signal progressively weaker capacity to honor obligations. S&P and Fitch apply broader credit rating scales adapted for insurance, and each agency's methodology incorporates both quantitative modeling and qualitative judgment. In the [[Definition:Lloyd's | Lloyd's]] market, the concept of security is especially prominent: [[Definition:Lloyd's syndicate | syndicates]] benefit from Lloyd's collective chain of security, which provides a centralized financial backstop that supports the market's overall rating. In regulated markets across Europe, Asia, and North America, [[Definition:Solvency | solvency]] frameworks such as [[Definition:Solvency II | Solvency II]], [[Definition:Risk-based capital (RBC) | RBC]], and [[Definition:C-ROSS | C-ROSS]] complement agency ratings by imposing minimum capital standards, but the market still looks to agency ratings as the primary commercial indicator of counterparty strength.

💼 Security ratings carry enormous practical consequences. Many corporate [[Definition:Risk manager | risk managers]] and [[Definition:Broker | brokers]] mandate minimum security ratings — often "A−" or higher from AM Best — before placing business with an insurer, and [[Definition:Reinsurance | reinsurance]] contracts frequently include [[Definition:Security clause | security clauses]] that allow cedants to commute or replace treaties if a reinsurer's rating falls below a specified threshold. A downgrade can trigger a cascading loss of business, as clients and intermediaries redirect [[Definition:Premium | premium]] to higher-rated competitors. For [[Definition:Insurtech | insurtech]] startups and newer [[Definition:Managing general agent (MGA) | MGAs]] that rely on [[Definition:Fronting carrier | fronting carriers]] or capacity partners, the security rating of the paper they write on is often the decisive factor in gaining access to large accounts and regulated distribution channels.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:AM Best]]
* [[Definition:Financial strength rating (FSR)]]
* [[Definition:Capital adequacy]]
* [[Definition:Solvency II]]
* [[Definition:Counterparty risk]]
* [[Definition:Rating agency]]
{{Div col end}}

Definition:Security rating - Revision history

PlumBot: Bot: Creating new article from JSON