Frequently Asked Questions

Expansion of coverage to the banking industry is largely a response to industry trends. A.M. Best has been providing rating services to the insurance industry since 1899, covering more than 4,000 insurance entities at year-end 2005. However, in recent years there have been fundamental changes in the financial markets in which both insurance companies and banks operate. Increasingly, both industries are competing for customers with similar products that target the same markets. In addition, some insurers have started their own banks, while a number of banks have entered the insurance business, primarily through distribution relationships.

A.M. Best has assembled a well-seasoned Banking Team for this initiative. Together, the primary analysts have hands-on experience in a wide range of segments of the banking industry, including: commercial banking and lending; asset based finance; community based thrifts; and wholesale, consumer, and retail banking.

Team members have held various senior management positions in the industry prior to joining A.M. Best. Past industry responsibilities included such diverse functions within a banking operation as risk management and policy development; accounting and financial reporting, regulatory examinations; audit and compliance; financial planning; and investments.

Team members also have experienced a number of significant industry cycles and banking crisis. These events range from the deregulation of the banking industry in the early 1980s, to the large bank failures and the Less Developed Country debt crisis of the mid 1980s, the real estate market crash of the late 1980s and early 1990s, the Asian Currency Crisis of the late 1990s, the corporate sector troubles in select industries in the early 2000's and finally the present period of record profit levels in the late 2000's.

Earlier in 2006, A.M. Best's coverage had included only research on current banking issues, trends, and developments. Beginning on October 2, 2006, A.M. Best offers interactive rating services to mid-sized and small U.S. banking entities with asset size between $100 million and $40 billion. Rating services include Bank Deposit Ratings on operating banks and Issuer Credit Ratings on banks and bank holding companies, as well as ratings on debt securities.

An interactive rating, as distinguished from a model-derived rating which is based strictly on public regulatory data, incorporates interactive discussions between banks and rating organizations. Such interaction permits the rating to be based on more than financial data, and include the longer-term business strategy of a bank as well as other qualitative elements like risk management and underwriting practices of the rated bank. Nearly every bank in the United States is already the subject of one or more credit ratings. Many of these ratings are non-interactive, and most smaller US banks have not obtained an interactive credit rating from a full-service rating agency. That's because most full-service agencies traditionally focus on the largest banks.  A.M. Best provides interactive rating services that are specifically targeting the smaller banks.

5. What are some of features of A.M. Best's bank ratings?

Some of the highlights of A.M. Best's bank ratings include:

-- Comprehensive analytical research reports on rated banks

-- Ratings will utilize the traditional credit market rating scale, based on conventional capital market standards.

-- These interactive ratings will include meetings with a bank's management for a full exchange of information between A. M. Best and the rated bank.

-- Ratings will include an assessment of a bank's strategy and competitive position beyond just the reported financial results of a bank.

-- Ratings will 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.

Initially, A.M. Best plans to cover the U.S. banking market with a concentration on commercial banks, savings banks and thrifts, and bankers' banks. In the future, we expect to initiate coverage for credit unions and other specialized financial institutions such as mortgage banks, credit card banks, and finance companies.

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.

Ratings affect the market in many ways. They can be used as underwriting guidelines or pricing benchmarks by insurance providers, deposit brokers, institutional depositors, inter-bank fund dealers, correspondent bankers, bank analysts and investors. All of these transactors touch one or more aspects of a bank's operations, including financing, funding, contract negotiation, regulatory compliance, and ultimately, bottom-line profits.

A.M. Best believes that a comprehensive interactive rating will enhance 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 will be an indispensable part of these banks' business management tools.

In addition to rating coverage, banking research will be published regularly as has been done since the beginning of 2006. Research reports, statistical studies and related research are featured on industry developments, issues and other economic factors impacting the industry. Additionally, various rating methodologies will be available in the Banking Center. There will also be a continuous news feed of banking related stories from Business Wire as well as access to industry statistics such as enforcement actions, mergers, and new bank applications.