RATING DEFINITIONS

What do our ratings mean?

Weiss Watchdog uses the following ratings:
Weiss Ratings' Financial Strength Ratings on more than 17,000 financial institutions, including banks, S&Ls, life and annuity insurers, health insurers, property and casualty insurers, and sovereign countries.
Weiss Ratings' Investment Ratings on 12,000 domestic and foreign stocks.
The Street's Investment Ratings on 21,000 mutual funds, closed-end funds and exchange-trade funds (ETFs.)
All are reated on the following scale:


A = excellent

B = good

C = fair

D = weak

E = very weak

+ = the upper third of each grade range

- = the lower third of each grade range

Below are details of each type of institution or investment


Banks and Thrifts: Weiss Ratings' Financial Strength Ratings


Weiss Rating's Financial Strength Ratings of banks and thrifts represent a completely independent, unbiased opinion of an institution's financial safety — now, and in the future. The ratings are derived, for the most part, from quarterly financial statements filed with federal regulators. Although we seek to maintain an open line of communication with the companies being rated, we do not grant them the right to influence the ratings or stop their publication.


The reatings are assigned by our analysts based on a complex analysis of hundreds of factors that are synthesized into five indexes: capitalization, asset quality, profitability, liquidity and stability. These indexes are then used to arrive at a letter grade rating. A good rating requires consistency across all indexes. A weak score on any one index can result in a low rating, as insolvency can be caused by any one of a number of factors, such as inadequate capital, poor underwriting practices, operating losses, or the failure of an affiliated company.


The primary components of our Financial Strength Rating of banks are as follows:


  • Capitalization Index gauges capital adequacy in terms of each institution's cushion to absorb future operating losses under various potential business and economic scenarios as they may impact the company's net interest margin, securities' values, and the collectability of its loans.
  • Asset Quality Index measures the quality of the company's past underwriting and investment practices based on the estimated liquidation value of the company's loan and securities portfolios.
  • Profitability Index measures the soundness of the company's operations and the contribution of profits to the company's financial strength. The profitability index is a composite of five sub-factors: 1) gain or loss on operations; 2) rates of return on assets and equity; 3) management of net interest margin; 4) generation of noninterest-based revenues; and 5) overhead expense management.
  • Liquidity Index values a company's ability to raise the necessary cash to satisfy creditors and honor depositor withdrawals.
  • Stability Index integrates a number of sub-factors that affect consistency (or lack thereof) in maintaining financial strength over time. Sub-factors include 1) risk diversification in terms of company size and loan diversification; 2) deterioration of operations as reported in critical asset, liability, income and expense items, such as an increase in loan delinquency rates or a sharp increase in loan originations; 3) years in operation; 4) former problem areas where, despite recent improvement, the company has yet to establish a record of stable performance over a suitable period of time; and 5) relationships with holding companies and affiliates.

In order to help guarantee our objectivity, we reserve the right to publish ratings expressing our opinion of a company's financial stability based exclusively on publicly available data and our own internally developed standards for safety.


Rating Definition
 
A Excellent. The institution offers excellent financial security. It has maintained a conservative stance in its business operations and underwriting practices as evidenced by its strong equity base, top-notch asset quality, steady earnings, and high liquidity. While the financial position of any company is subject to change, we believe that this institution has the resources necessary to deal with severe economic conditions.
 
B Good. The institution offers good financial security and has the resources to deal with a variety of adverse economic conditions. It comfortably exceeds the minimum levels for all of our rating criteria, and is likely to remain healthy for the near future. Nevertheless, in the event of a severe recession or major financial crisis, we feel that this assessment should be reviewed to make sure that the company is still maintaining adequate financial strength.
 
C Fair. The institution offers fair financial security, is currently stable, and will likely remain relatively healthy as long as the economic environment avoids the extremes of inflation or deflation. In a prolonged period of adverse economic or financial conditions, however, we feel this company may encounter difficulties in maintaining its financial stability.
 
D Weak. The institution currently demonstrates what we consider to be significant weaknesses which could negatively impact depositors or creditors. In an unfavorable economic environment, these weaknesses could be magnified.
 
E Very Weak. The institution currently demonstrates what we consider to be significant weaknesses and has also failed some of the basic tests that we use to identify fiscal stability. Therefore, even in a favorable economic environment, it is our opinion that depositors or creditors could incur significant risks.
 
F Failed. The institution has been placed under the custodianship of regulatory authorities. This implies that it will be either liquidated or taken over by another financial institution.
 
+ The plus sign is an indication that the institution is at the upper end of the letter grade rating.
 
- The minus sign is an indication that the institution is at the lower end of the letter grade rating.
 
U Unrated. The institution is unrated due to insufficient data at the time its rating was updated.
 

Insurance Companies: Weiss Ratings' Financial Stability Ratings


Weiss Ratings' Financial Strength Ratings represent a completely independent, unbiased opinion of the insurance company's financial safety — now, and in the future. The ratings are derived, for the most part, from annual and quarterly financial statements obtained from state insurance commissioners. This data is supplemented by information that we request from the insurance companies themselves. Although we seek to maintain an open line of communication with the companies being rated, we do not grant them the right to influence the ratings or stop their publication.


The ratings are assigned by our analysts based on a complex analysis of hundreds of factors that are synthesized into a series of indexes: capitalization, investment safety (L&H companies only), reserve adequacy (P&C companies only), profitability, liquidity, and stability. These indexes are then used to arrive at a letter grade rating. A good rating requires consistency across all indexes. A weak score on any one index can result in a low rating, as insolvency can be caused by any one of a number of factors, such as inadequate capital, unpredictable claims experience, poor liquidity, speculative investments, inadequate reserving, or consistent operating losses.


The primary components of the Weiss Financial Strength Rating are as follows:


  • Index gauges capital adequacy in terms of each insurer's ability to handle a variety of business and economic scenarios as they may impact investment performance, claims experience, persistency, and market position. The index combines two Risk-Adjusted Capital ratios as well as a leverage test that examines pricing risk.
  • Investment Safety Index measures the exposure of the company's investment portfolio to loss of principal and/or income due to default and market risks. Each investment area is rated by a factor that takes into consideration both quality and liquidity. This factor is measured as a separate index only for life, health, and annuity insurers.
  • Reserve Adequacy Index measures the adequacy of the company's reserves and its ability to accurately anticipate the level of claims it will receive. This factor is measured as a separate index only for property and casualty insurers.
  • Profitability Index measures the soundness of the company's operations and the contribution of profits to the company's financial strength. The profitability index is a composite of five sub-factors: 1) gain or loss on operations; 2) consistency of operating results; 3) impact of operating results on surplus; 4) adequacy of investment income as compared to the needs of policy reserves (L&H companies only); and 5) expenses in relation to industry norms for the types of policies that the company offers.
  • Liquidity Index values a company's ability to raise the necessary cash to settle claims and honor cash withdrawal obligations. We model various cash flow scenarios, applying liquidity tests to determine how the company might fare in the event of an unexpected spike in claims and/or a run on policy surrenders.
  • Stability Index integrates a number of sub-factors that affect consistency (or lack thereof) in maintaining financial strength over time. These sub-factors will vary depending on the type of insurance company being evaluated but may include such things as 1) risk diversification in terms of company size, group size, number of policies in force, types of policies written, and use of reinsurance; 2) deterioration of operations as reported in critical asset, liability, income and expense items, such as surrender rates and premium volume; 3) years in operation; 4) former problem areas where, despite recent improvement, the company has yet to establish a record of stable performance over a suitable period of time; 5) a substantial shift in the company's operations; 6) potential instabilities such as reinsurance quality, asset/liability matching, and sources of capital; and 7) relationships with holding companies and affiliates.

In order to help guarantee our objectivity, we reserve the right to publish ratings expressing our opinion of a company's financial stability based exclusively on publicly available data and our own internally developed standards for safety.


Rating Definition
 
A Excellent. The company offers excellent financial security. It has maintained a conservative stance in its investment strategies, business operations and underwriting commitments. While the financial position of any company is subject to change, we believe that this company has the resources necessary to deal with severe economic conditions.
 
B Good. The company offers good financial security and has the resources to deal with a variety of adverse economic conditions. It comfortably exceeds the minimum levels for all of our rating criteria, and is likely to remain healthy for the near future. However, in the event of a severe recession or major financial crisis, we feel that this assessment should be reviewed to make sure that the firm is still maintaining adequate financial strength.
 
C Fair. The company offers fair financial security and is currently stable. But during an economic downturn or other financial pressures, we feel it may encounter difficulties in maintaining its financial stability.
 
D Weak. The company currently demonstrates what we consider to be significant weaknesses which could negatively impact policyholders. In an unfavorable economic environment, these weaknesses could be magnified.
 
E Very Weak. The company currently demonstrates what we consider to be significant weaknesses and has also failed some of the basic tests that we use to identify fiscal stability. Therefore, even in a favorable economic environment, it is our opinion that policyholders could incur significant risks.
 
F Failed. The company is deemed failed if it is either 1) under supervision of an insurance regulatory authority; 2) in the process of rehabilitation; 3) in the process of liquidation; or 4) voluntarily dissolved after disciplinary or other regulatory action by an insurance regulatory authority.
 
+ The plus sign is an indication that the company is at the upper end of the letter grade rating.
 
- The minus sign is an indication that the company is at the lower end of the letter grade rating.
 
U Unrated. The company is unrated for one or more of the following reasons: (1) total assets are less than $1 million; (2) premium income for the current year was less than $100,000; or (3) the company functions almost exclusively as a holding company rather than as an underwriter; or (4) we do not have enough information to reliably issue a rating.
 

Sovereign Nations: Weiss Ratings' Financial Stability Ratings


The Weiss Sovereign Debt Ratings represent a completely independent, unbiased opinion of a country’s financial stability. The ratings are derived from data published by the International Monetary Fund and other governmental sources. They are based on an analysis of factors that are categorized into four indexes:


  • Debt Index measures the country’s overall reliance on deficit financing and debts in proportion to the size of its economy and population.
  • Stability Index evaluates the country’s strength in terms of its currency, reserves, status as a world reserve currency, access to Special Drawing Rights (SDRs) and long-term default history.
  • Macroeconomic Index reflects the long-term sustainability of the economy, considering GDP growth, unemployment, inflation and other economic variables.
  • Market Acceptance Index measures the current and historic capacity of each sovereign government or its agencies to borrow readily in the marketplace.
Rating Definition
 
A Excellent. The country’s government finances are in excellent condition. It has consistently managed its budget and debts very well; the backing for its currency is strong; risk stemming from economic instability is minimal; and it retains an excellent ability to raise money in global markets. Investors in the country’s bonds face risks strictly associated with rising global interest rates and currency fluctuations.
 
B Good. The country’s government finances are in good overall financial condition, with at least good scores in all, or nearly all, rating criteria — debt, global stability, macroeconomic factors and borrowing ability while harboring no significant weaknesses in any of these categories. Investors in the country’s bonds face mostly normal risks associated with rising global interest rates and currency fluctuations.
 
C Fair. The country is in fair financial condition and is currently stable although it may display weaknesses in one or more areas. However, in the event of adverse economic or market conditions, it may encounter difficulties in maintaining its financial stability. Investors in the country’s government securities face potential losses if there are sustained market declines in the country’s medium- or long-term government securities exceeding those stemming strictly from rising inflation. Investors could also be exposed to sustained losses stemming from a serious decline in the nation’s currency.
 
D Weak. The country is in a weak financial condition, demonstrating poor results on more than one of the rating criteria. It may be overburdened with debts; suffer from inadequate currency reserves; have persistent difficulties in sustaining economic growth; or be unable to raise funds in global debt markets. Investors face not only large risks from market declines in the nation's bonds and currency but also sharply rising risk premiums due to spreading fears of default. Investment in the country's debt securities is speculative. Global investors face the risk of default or de-facto default resulting in sharply falling values of the nation's currency and/or bond prices.
 
E Very Weak. The country has very severe financial weaknesses that make investment in its securities extremely risky. It fails to achieve adequate scores in nearly every major category. Investors face very high and immediate risks of loss due to sharp bond price declines, currency collapses or outright default. Any investment in these country’s public or private securities must be considered extremely speculative.
 
F Failed. The country has defaulted on its public debt and/or under supervision of the International Monetary Fund or other global authorities.
 
+ The plus sign is an indication that the country is at the upper end of the rating.
 
- The minus sign is an indication that the country is at the lower end of the rating.
 

Common Stocks: Weiss Ratings' Investment Ratings


A                Excellent


The company’s stock has an excellent track record for providing strong performance with minimal risk, and it is trading at a price that represents good value relative to the company’s earnings prospects. While past performance is no guarantee of future results, we believe this stock is among the most likely to deliver superior performance relative to risk in the future. Although even the best stocks can decline in a down market, our “A” rating can generally be considered the equivalent of a "Strong Buy".


B                Good


The company’s stock has a good track record for delivering a balance of performance and risk. While the risk-adjusted performance of any stock is subject to change, we believe that this stock is a good value, with good prospects for outperforming the market. Although even good investments can decline in a down market, our “B” rating is considered the equivalent of a "Buy".


C                Fair


In the trade-off between performance and risk, the prospects for the company’s stock are about average based on its track record and current valuation. Thus, we feel it is neither a significantly better nor a significantly worse investment than most other common stocks. Although stocks can be driven higher or lower by general market trends, our "C" rating can generally be considered the equivalent of a "Hold."


D                Weak


The company’s stock is an underperformer relative to other common stocks with a similar amount of risk. While the risk-adjusted performance of any common stock is subject to change, we believe that this stock represents a poor investment based on its current valuation and the company’s current financial position. Even weak stocks can rise in an up market. However, our "D" rating can generally be considered equivalent to a "Sell."


E                Very Weak


The prospects for the company’s stock are not good, with significant downside risks outweighing any upside potential. This opinion is based on the company’s current financial condition in combination with the stock’s historical riskadjusted performance and current valuation. While the risk-adjusted performance of any stock is subject to change, we believe this stock is a poor investment risk. Even some of the weakest stocks can rise in certain market conditions. However, our "E" rating can generally be considered the equivalent of a "Strong Sell."


F                Bankrupt


Our “F” rating means that the company issuing this stock is currently in bankruptcy proceedings, and that it remains under active coverage. The decision to retain bankrupt companies' stocks under active coverage is based on factors such as data availability and quality, and is made on a discretionary basis. Typically, shareholders in a bankrupt company lose their entire investment when the company emerges from Chapter 11 reorganization or liquidates under Chapter 7. Therefore, we feel this stock has substantial downside risk for investors and very little, if any, upside potential.


+               The plus sign


An indication that the stock is at the upper end of the letter grade rating.


-                The minus sign


An indication that the stock is at the lower end of the letter grade rating


U               Unrated


The stock is unrated for one or more of the following reasons: 1) It is too new to make a reliable assessment of its risk-adjusted performance. (Typically, a stock must have traded for at least one year before it is eligible to receive a Weiss Investment Rating.); 2) Quarterly reports filed with the SEC were either late or missing critical items that Weiss Ratings deems necessary for a thorough analysis; 3) Data anomalies exist that call into question either the accuracy or completeness of the information presently available to Weiss Ratings.



Mutual Funds, Closed-End Funds and ETFs: The Street's Investment Ratings


A              Excellent


The mutual fund has an excellent track record for maximizing performance while minimizing risk, thus delivering the best possible combination of total return on investment and reduced volatility. It has made the most of the recent economic environment to maximize risk-adjusted returns compared to other mutual funds. While past performance is just an indication – not a guarantee – we believe this fund is among the most likely to deliver superior performance relative to risk in the future.


B              Good


The mutual fund has a good track record for balancing performance with risk. Compared to other mutual funds, it has achieved above-average returns given the level of risk in its underlying investments. While the risk-adjusted performance of any mutual fund is subject to change, we believe that this fund has proven to be a good investment in the recent past.


C              Fair


In the trade-off between performance and risk, the mutual fund has a track record which is about average. It is neither significantly better nor significantly worse than most other mutual funds. With some funds in this category, the total return may be better than average, but this can be misleading since the higher return was achieved with higher than average risk. With other funds, the risk may be lower than average, but the returns are also lower. In short, based on recent history, there is no particular advantage to investing in this fund.


D              Weak


The mutual fund has underperformed the universe of other funds given the level of risk in its underlying investments, resulting in a weak risk-adjusted performance. Thus, its investment strategy and/or management has not been attuned to capitalize on the recent economic environment. While the risk-adjusted performance of any mutual fund is subject to change, we believe that this fund has proven to be a bad investment over the recent past.


E               Very Weak


The mutual fund has significantly underperformed most other funds given the level of risk in its underlying investments, resulting in a very weak riskadjusted performance. Thus, its investment strategy and/or management has done just the opposite of what was needed to maximize returns in the recent economic environment. While the risk-adjusted performance of any mutual fund is subject to change, we believe this fund has proven to be a very bad investment in the recent past.


+               The plus sign


An indication that the fund is in the top third of its letter grade.


-                The minus sign


An indication that the fund is in the bottom third of its letter grade.


U               Unrated


The mutual fund is unrated because it is too new to make a reliable assessment of its risk-adjusted performance. Typically, a fund must be established for at least three years before it is eligible to receive a TheStreet.com Investment Rating.