Abstract
This article aims to study the impact of rating agencies during the financial crisis and the ratings’ role in insurance companies’ behavior in the operating market. Important in a rating agency's assessment of overall financial strength is the insurer's ability to meet policyholder obligations. In the first part of this article we will present the context in which the major rating agencies are being analyzed and the market's attitude towards the qualifications awarded by them. During the time period of this study there were four major rating agencies that provided financial strength ratings of insurance companies: Standard & Poor's, Moody's, Fitch and AM Best. Next, we will study the important role of rating agencies in the economic crisis, but also the overreliance of firms, some relying solely on the ratings granted by rating agencies, not having a proper risk assessment system of their own. Despite the fact that the industry encourages insurers to have their private risk assessment methods, investors and policyholders still expect that ratings provide a realistic reflection of the outstanding risks to the market participants. The case of American International Group is presented in the third part of this article, analyzing the reasons which led to the 2008 liquidity crisis and the involvement of rating agencies in the group's affairs. It is important to identify the link between the AIG failure and understanding the systemic risks of financial institutions and to draw the lessons for protecting the financial stability of the insurance sector. Next, according to Moody's model for rating insurance companies, we will present a case study of the applicability of this model for two of the most important Romanian insurance companies, starting with 2006 until the last closed fiscal year, 2012.
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