Until recently, financial stability and creditworthiness ratings were used only as tools for stock market participants. Now the situation has changed. The activities of rating agencies have covered a much larger area, helping the mass consumer to make the right choice in favor of a particular bank or insurance company. But this is exactly what an ordinary citizen needs. That is why it is worth understanding what ratings are. And it’s worth starting with their appearance.
Rating History
In general, this system was first used more than a century ago. At the end of the nineteenth century, the United States began to use ratings of financial stability and creditworthiness. Initially, they were assigned only to bond issuers, and they served as a tool for professionals trading in stock markets. And only twenty years ago they stopped using this indicator as a regulatory lever for assessing creditworthiness. If we talk about what ratings are, then it is worth noting that until recently they were not used as one of the characteristics for choosing a suitable bank, insurance or credit institution. In the world, this system was not used, as it was difficult enough for ordinary citizens to understand, which is why it was not in demand.
Now many may wonder what the rating of banks is. Indeed, in recent years it has been used to determine the financial sustainability of institutions, as well as to understand what companies and structures it is worth working with the population, small and medium-sized businesses. That is why recently the role of ratings has become very significant, and they are now being applied more and more actively.
Use in everyday life
Now, when the question of what ratings are, everything has become more or less clear, it is necessary to touch on the moments associated with their use in everyday life. And here they come in handy for understanding which business can be called more stable, as well as reliable, in order to determine whether it is worth working with any specific insurance companies and other financial institutions.
So, what are ratings, you already understood, now you can go to the significant points. The first is very important, as it relates to financial stability ratings assigned by specialized agencies. In general, the analysis received from financial advisors and market analysts relates to the field of assessing the quality of services provided. It turns out that the use of financial stability ratings has nothing to do with assessing the bank itself, the service, the insurance company, the convenience of working with a financial institution or management company. This is only an assessment of the position of the organization itself.
What is the rating of banks?
This parameter in the description of a financial authority can be used to understand whether it is reliable or not. That is, to determine the likelihood of a bank or an insurance company fulfilling its immediate obligations to a client. However, the rating does not answer the question of whether it will be convenient for you to work with the institution, how good and comfortable its site is for using, how many offices it has, where you can go at any time to get all the necessary information or services.
Use in other situations.
If we are talking about an insurance company, then here, too, such a parameter as a high rating is not indicative. It will not be clear from him exactly how the company works with its customers, whether it is suing them for payments, which is now a very common practice.
That is why the use of ratings cannot be called the only tool for choosing an insurance company or bank. It is also necessary to pay attention to the list of services provided, to the usability of the service through the site, the ease of use of offices, the number of negative and positive reviews about this organization. So, if we talk about what ratings are, then they can be called only one tool, which is required for making the right choice, cutting off the least reliable banks and insurance companies, as well as for working with more stable financial institutions.
Rating score
In Russia, in recent years, many banks and insurance companies were left without licenses and went bankrupt due to the current situation. The financial sector survived the economic crisis very hard, and some large structures were even left without licenses. This is what speaks of the need to be very careful about the choice of banks and insurance companies that you can trust. As a rule, institutions that lost their licenses and went bankrupt had a rather low rating, but not all. There are examples of how banks with sufficiently high indicators of financial stability experienced significant problems, which made them bankrupt. And here you can’t talk about the mistake made by specialized agencies. Their assessment is a characteristic of the probability of bankruptcy or some kind of financial problems.
Personal assessment
The same can be said when answering the question of what a personal rating is. It is compiled for individuals whose activities may affect the work of others. For example, a rating of traders on the stock exchange is formed, showing who and how works. This indicator is not a guarantee that everything will continue at the same level, but it gives an idea of the method and principle of activity.
How are financial stability ratings determined?
This question can be discussed in more detail. It is important to determine what it is and how the rating agencies calculate their performance by assigning certain points to insurance companies, banks, and other financial institutions.
So, if the meaning of the word "rating" has become clear, then it is worth considering it in the context relating to financial institutions. This indicator hides the assessment of the probability of bankruptcy. In simple terms, it speaks of the possibility of a bank or an insurance company not to fulfill obligations to customers, depositors, creditors, and also insured persons. There is a more complex definition, but in this case it is quite possible to say that the probability of such a situation is the main and most important point.
Ratings in other areas
As practice shows, the use of such an assessment parameter is appropriate not only in the financial sector, but also in the gaming. So, it’s worth mentioning what the rating in WoT is. The game World of Tanks, which has become very popular recently, uses a rating system that shows how well each of the gamers plays. However, now many people have a question about what is the rating of WN6. The formula of this indicator uses the number of frags, the damage done, and other characteristics give a small percentage. It is impossible to wind up this rating, as the old one, since base capture points and other insignificant points are not taken into account here, which allows a better assessment of the player’s abilities.
As you can see, the rating system has recently become more and more popular in all areas of life.