AA+ — S&P / Fitch
Aa1 — Moody’s
Major independent rating institutions such as Moody’s, Fitch, and Standard & Poor’s (S&P) can make or break a company or municipality’s ability to issue debt at a competitive yield. They rank companies and debt issues in terms of the risk of default.
Ratings in the A range are considered Investment Grade, which is a rating mostly used by institutional investors.
The interesting thing is that there are 7 kinds of A ratings, and they are different between the ratings institutions. We will not list them here, but charts that show the system are readily available online.
The rating of AA+/Aa1 is the second-best rating that a debt issue can get, and, because companies in a country with a certain credit rating can only be rated up to a certain level themselves, this may be the best rating a debt issue or company can get. Insurance companies are also rated and compared using these systems since they have large liabilities on the books in terms of the potential claims they must pay.
Because there are so many ratings available, it is hard to keep up with, and this can be used in a misleading way in communication with clients: if an insurer says they have an A+ rating for financial strength, a client would probably think that’s about as good as it gets, when, in fact, it’s the 5th best rating in the S&P and Fitch systems.
For the rating in question, however, investors could rest assured that there is almost no risk of default. There has been some scrutiny aimed at the ratings companies in the last decade since several companies retained high ratings up until the point that they failed and lost millions of people a lot of money.
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