Credit ratings are used to predict a company’s creditworthiness and determine insurance rates. Rating offices assign ratings to individuals, companies, and financial instruments. International rating offices include Standard and Poor’s and Fitch Ratings. Insurance companies use rating bureaus to set rates for insurance, including workers’ compensation. Rating offices provide valuable services but may have different regional supervision and requirements. It is important to research the ratings bureau and credit rating before making an investment.
One of the factors to consider before making an investment is the credit rating of the company. This is a designation intended to predict the creditworthiness of a company. The ratings are also used to determine personal, business, and workers’ compensation insurance rates. A rating office is an independent or government agency that assigns ratings to individuals, companies, and financial instruments.
A credit rating bureau can operate both nationally and internationally. Consumer credit reporting agencies, also called credit bureaus, assign scores to individuals. These are independent entities, although they must comply with applicable laws regarding fair and accurate reporting and consumer confidentiality. Credit scores are generally based on a person’s debt-to-income ratio, payment history, and the amount of credit available compared to total debt.
Rating offices are used around the world to assess the creditworthiness of a company or government entity that issues shares, debt instruments, or other securities. One of the concerns expressed by national and international regulators is that the company seeking the rating pays the rating bureau. Traditionally, these agencies have set voluntary standards to try to achieve uniformity and fairness in their reporting. In the United States, such agencies must comply with applicable Securities and Exchange Commission (SEC) regulations. The European Union (EU) has passed legislation requiring any rating agency operating within the EU to register and comply with EU regulations.
As economic interests have become more global, several international rating offices have been created. Standard and Poor’s is one of the most recognized international agencies. Another is Fitch Ratings, which has headquarters in New York and London. The Association of Credit Rating Agencies in Asia was established to promote common practices and standards among rating agencies throughout the region.
Insurance companies also use a rating bureau to set rates for auto, property, life, and business insurance. These companies aggregate claim information to obtain a broader statistical base from which to derive accurate insurance rates. While insurance companies generally stick to the recommended rates, they can deviate from them if they choose. Some regions require prior approval from the agency or a government overseer before granting a variance. In some localities, rating agencies have established rating offices to oversee insurance rating agencies and ensure legal compliance and fairness.
Workers’ compensation, called Work Cover in Australia, is a mandatory program in Europe, Canada, Australia, the United States and other regions. Employers purchase these policies to cover medical costs and lost wages for employees who receive work-related injuries. A workers’ compensation insurance rating office determines the rates a company is charged for this type of insurance. One of the factors used to determine cost is the frequency and severity of injuries that tend to occur in that particular industry. Since worker’s compensation pays a percentage of wages to an injured worker, the rates are also based on the employee’s pay scale.
A rating office provides a valuable service to insurance companies, investors, and lenders. While no one can predict future events, these agencies have access to financial data that the general public cannot see. Regional supervision and requirements for such agencies may differ, so it’s a good idea to research the ratings bureau doing the assessment, as well as the credit rating of a potential investment.
Smart Asset.
Protect your devices with Threat Protection by NordVPN
