You and your Rating Agency – Top Tips
In an update to our article first published in 2013 (“The Litmus First XI – Top Tips for Managing the Relationship with your Rating Agency”), we share some further insights we have gained over the last four years.
1. Allow plenty of time to prepare before the management meeting “Management meetings” are what rating agencies call the annual rating meeting. Don’t rush into things at the last minute, and imagine that you can take an existing presentation ‘off the shelf’. The outcome will be much better if you take the time to plan carefully before your management meeting (or indeed any interaction) with the analysts.
2. Make an effort to understand their criteria
“Criteria” is the word rating agencies use to describe their methodology. Details of this must be published on their websites, and it is important that you gain an understanding of how their analysis works. The more knowledgeable everybody involved is, the more likely you are to successfully explain your strengths and/or address any perceived weaknesses, in the context of the rating.
3. Get the right people at the meeting
This will depend on circumstances and the type of organisation you are. There is no hard and fast rule, but you should think carefully about things like the flow of the meeting, presenting skills, showcasing key competencies and time management.
4. Remember ratings are decided by committees (not individuals or models)
The analysts you meet are your communication channel to the members of the committee. Not only do you need them to believe in the strength of your profile, they need to be able to effectively explain this to a committee whose job is – in part – to be sceptical. Give them the tools they need to do this.
5. Don’t rely on ‘word of mouth’ comments you make at the management meeting
If it’s important, put it in the presentation. Even if the analysts accurately note all your verbal comments and responses to questions, they may not remember the exact rationale. If you do not cover all key points in the slides, the rating committee may not get the full picture.
6. Make sure the agency capital model is completed accurately
This remains a key element of the analysis, and remember that it is not only the most recent financial year that is of interest. What the agencies will be looking at is the future trend, so make sure your forecasts are robust.
7. Prospective earnings are crucial, but you have to make a compelling case for them
See above. Both AM Best and S&P have always seen prospective earnings as fundamental to the rating and recent criteria changes have made this even more explicit. It’s partly about your track-record but also about ‘the what and why’; how your market position, competitive advantages and underwriting controls will deliver the results you are forecasting.
8. Make sure the message is clear and memorable
If you believe you have a good story to tell on any part of the analysis put the message in the slide heading (don’t leave it as the final point at the bottom of the slide!) If something is subjective use memorable anecdotes to illustrate the point. We recommend you highlight all of your key competencies and strengths, even if this is a repetition of previous presentations.
9. Graphs and diagrams are helpful but don’t try to mislead
Use graphs to clearly show the important trend, fact or process. But don’t make them too complex or the power of the point will get lost. And don’t attempt to game the agencies by, for instance, presenting selective years only or extended/truncated axes. You are unlikely to get away with this.
10. Keep your agency updated
Don’t treat your rating as a ‘once-a-year’ effort. Not only is it necessary to keep your analysts up-to-date with any developments or updated financials, but it will also stand you in good stead to be ‘on top of’ the process at all times.
11. ERM is a strategic process
Make sure you cover your ERM function in detail, so as to make clear how it informs your strategy and is embedded across your operations. Even if ERM is considered of ”low importance” to your rating, it provides an important backdrop to the agency’s view of the overall management and functioning of the company.
Senior Consultant Analyst