Rating summary
Financial Strength ratings communicate AKG’s solely customer orientated assessment of a company’s ability to maintain operational capability to meet the needs of customers. These ratings are specifically designed for use by advisers, working on behalf of these customers.
This fundamental focus is distinct from the global rating agencies or those providing credit ratings, whose perspective is primarily that of meeting the requirements of a different audience. AKG ratings are not credit ratings and the strength and sustainability interests of market investors who might use credit ratings, are different and may even be at odds with AKG’s customer perspective.
AKG ratings are widely available in the market, both directly from AKG and often from the rated entity itself. But also in a wide range of leading portals, software systems and publications.
Whilst the assessment behind AKG ratings is complex, the scale used for presentation is deliberately simple to maintain accessibility and comparability. The scales used are a one (lowest) – five (highest) scale for star ratings and A (highest), B+, B, B-, C, D (lowest) for the overall financial strength rating.
With Profits fund and sub-fund ratings are given for Financial Strength, Future Performance and Transparency on a one (lowest) - five (highest) star rating scale.
The assessment approach used for all AKG ratings is that of a balanced scorecard, with a combination of criteria assessed and no single factor or measure being dominant.
Operational Level Assessment
From the customer perspective, the financial strength of companies needs to be focused at an operational level, specifically on the company that is effecting the product or service that a customer is selecting. This is important, because from the customer’s perspective it is that company (not some higher corporate entity) that needs to survive in a form that maintains the requisite operational characteristics to meet their fairly held requirements. And it is thus at this level that the selection needs of the customers’ advisers must be met.
AKG therefore adopts this level of focus on operational capability and does not seek to rate group / holding companies. Our assessment falls at a lower corporate level than typically considered in other types of rating, although consideration of such group and parental aspects remain very important contextual criteria.
This contrasts to credit rating, which will be undertaken at group or parent company level where investment or debt placement etc. is made. This is perfectly reasonable for credit rating, but it is unreasonable and inappropriate for customer-oriented assessment.
Assessment Sectors
It is also important to understand the sector approach (comparative peer groups) that is adopted in financial strength assessment and rating process. At AKG, this is again driven by the end customer perspective and the fact that assessment is designed solely for this purpose, i.e. as a component in helping customers’ advisers to select between comparable companies competing to deliver relevant products or services.
Assessment & Rating Process
AKG’s process for assessment and rating is to use a balanced scorecard with a combination of criteria assessed and no single factor or measure being dominant and a combination of measures and comparative information, relevant to the companies contained within each peer group. This is gathered via Public Information only for non-participatory assessments and Public Information plus company interactions with companies for participatory assessments.
Assessment is predominantly comparative, but with the ability to consider absolute characteristics, where it is deemed useful from a user perspective to understand and reflect broader trends and issues of a market wide nature. For example, during a sustained financial crisis it may be appropriate that almost all companies within a sector move down the ratings spectrum, notwithstanding the fact that their relative financial strength, within that sector from a customer’s perspective, has not significantly altered. This change would therefore be to illustrate and communicate a weakening of the companies in the sector.
Tools for the comparison and of both quantitative and qualitative data and information are used within the process. There is appropriate oversight and peer review of both the information compilation and of the final assessment and rating establishment with the latter being ultimately established at an AKG rating committee level.
Sources of public information include: Report & Accounts, Solvency and Financial Condition reports for insurance companies, Pillar III/IFPR disclosure documents, PPFMs, press releases, websites, press reports, and product brochures.
Sources of non public information include: company presentations, management accounts and dialogue with senior management.