Fitch Ratings is an international financial rating agency. They are based in New York and London. Fitch examines and rates the credit quality of bonds, issuers of securities, national governments, and individuals. Fitch ratings are used by the investing public to assess the quality of bonds, by lenders to assess the credit quality of potential borrowers, and by insurance company investors and customers to assess the claims-paying ability of insurers.
Fitch is one of the “Big Three” rating agencies, the other two being Moody’s and Standard & Poor’s. These three organizations are designated by the U.S. Securities and Exchange Commission as nationally recognized statistical rating organizations.
Fitch Bond Ratings
Fitch is known primarily for their rating of individual bonds. A bond rated by Fitch is assigned one of eleven ratings. Each rating falls into one of two categories: investment grade or non-investment grade. Investment grade bonds are considered high-quality, while non-investment grade bonds are considered speculative or “junk” bonds.
These ratings are very commonly used by investors, from individuals investing for retirement planning to large institutional investors.
Investment Grade Ratings
AAA: Issuers of exceptionally high credit quality. These companies are well-established and have consistently healthy cash flows.
AA: These issuers are still high quality, but with slightly more risk than AAA issuers.
A: Slight vulnerability to business or economic risk, but a low expectation of default.
BBB: Business or economic factors could negatively affect the issuer, but the risk of default is still low.
Non-investment Grade Ratings
BB: There is still financial flexibility, but these bonds are vulnerable to default risk and more sensitive to business or economic conditions.
B: Highly speculative; degenerating financial condition of the issuer.
CCC: There is a serious possibility of default.
CC: Default is likely.
C: Default or a default-like process has begun.
RD: The issuer has defaulted on an interest or principal payment.
D: “D” bonds have defaulted.
Fitch Ratings of Individual Credit Scores
In addition to rating individual securities, Fitch also rates individual people. By assigning a credit score to a person, a lender can have an idea of how much risk that person would present if they were loaned money. Factors that go into an individual credit score include repayment history, bankruptcies, late payments, and other things.
A person’s credit score can determine whether they can obtain credit, and if so, at what cost.
Fitch Ratings for Insurance Companies
Fitch also rates the financial strength and claims-paying ability of life insurance companies.
When you purchase a life insurance policy or a retirement planning annuity, you establish a long-term relationship with the issuing insurance company. That makes it important to be sure that the company has the financial strength to meet its claims-paying obligations in the future.
Fitch ratings act as sort of a barometer of an insurance company’s financial health. The higher the rating, the more financially reliable the company will likely be.