Overview
A.M. Best has been providing rating services to the insurance industry since 1899, covering more than 4,000 insurance entities at year-end 2006. Recently, A.M. Best has witnessed fundamental changes in the financial markets in which the insurance companies operate. Banks have been entering the insurance business, either by buying agencies for life or property and casualty lines, or by acting as major distribution channels for certain insurance products such as variable annuities. The two industries are also increasingly competing for customers with similar products, such as single premium deferred annuities and bank certificates of deposit--both targeting the same markets.
In response to these developments, A.M. Best introduced its bank rating services, effectively as of October 2, 2006. Rating services consist of interactive ratings on U.S. banks and bank holding companies, and include Bank Deposit Ratings on operating banks and Issuer Credit Ratings on banks and bank holding companies, as well as ratings on debt securities. While this service is available to any interested banking institution, A.M. Best's focus is on U.S. banks with asset sizes ranging from approximately $100 million at the low end to approximately $40 billion at the high end, with a specific focus on the mid-sized and small banks.
Small and mid-sized U.S. banks traditionally have not received comprehensive rating coverage. This is partly due to the lower participation by the small banks in the public debt market than is the case for large banks. However, there are very compelling needs for ratings on small and mid-sized banks in the changing U.S. banking industry. A.M. Best observes that market forces coupled with regulatory initiatives are driving the U.S. banking industry toward greater transparency, as has been called for by many industry participants, including banks' customers, transaction counterparties, banking regulators and the investment community.
A.M. Best believes that a comprehensive interactive rating enhances a small or mid-sized bank's operation by affording it greater expediency in reaching out to new deposit bases and other funding sources. Because of increasing competitive pressures, small and mid-sized banks are constantly searching for ways to improve their operations, and an interactive rating is an indispensable part of these banks' business management tools.
Some of the highlights of A.M. Best's bank ratings include:
- Comprehensive analytical research reports on rated banks.
- Ratings utilize the traditional credit market rating scale, based on conventional capital market standards.
- These interactive ratings include meetings with a bank's management for a full exchange of information between A. M. Best and the rated bank.
- Ratings include an assessment of a bank's strategy and competitive position beyond just the reported financial results of a bank.
- Ratings be based on A. M. Best's core principles of analyzing a banking operation through various stages of the industry cycle.
- Finally, considerations of the impacts of affiliates and parent entities within a banking group are incorporated in our rating analysis.
Analytical methodologies are released throughout each year. The most recent publication was a final document released on January 8, 2009, titled, "Rating U.S. CDFI Banking Organizations." A.M. Best provides periodically its analytical views on risk issues and financial strength of U.S. banks. Analytical methodologies are also published for specialized banking operations and sectors within the banking industry. Additionally, A.M. Best has developed analytics on regional banking markets in the United States in order to incorporate local economic and regulatory factors in its assessment of banks. Read Best's Guide to Banking Deposits for complete details on Bank Deposit Ratings.
This information is announced over major wire services and in various A.M. Best publications, such as BestWire and BestWeek. For further information on our banking initiative or to contact analytical staff, please e-mail us at banking.analysis@ambest.com.
