Financial Ratings Used by Investors

 There are two rating organizations that commonly rate the financial risk of corporations – these are Ram Ratings and Fitch Ratings. Their ratings are presented by using a combination of letters (A, B, C, and D) and numbers (1, 2, and 3). In addition, they use plus (+) and minus (-).

Ratings are also usually done on graded scale. For example, a rating of Triple A (AAA) indicates an investment that is totally risk free, primarily given for special risk-free organizations or sovereign bonds – for instance, the NSB (National Savings Bank). On the other hand, the bottom of the rating scale is a D rating, which denotes that the company may be in default, or worse, near bankruptcy.

When there are various miscellaneous ratings produced for inspection, such ratings don’t indicate the organization’s financial risk. “They’re only used primarily as marketing and advertising tools, although they will use the same alphabetical numeric as what Fitch and Ram utilizes,” said Adrian Perera, Ram Ratings’ Chief Executive Officer.

Obtaining a rating for insurance companies is not really mandatory at present although it’s a long-term investment. However, a lot of insurance companies today obtained their own financial ratings to measure their ability to pay claims.