Credit Risk Management

“People should be more concerned with the return of their principal than the return on their principal.”

These words, spoken by Will Rogers during the peak of the Great Depression are no less true today. Credit losses destroy surplus more quickly than credit risk creates it. Credit events are seldom obvious and never convenient.

While Nationally Recognized Statistical Rating Organizations (NRSROs) form the basis of SVO categorization, relying on the NRSRO to identify a credit or event leaves the insurer at risk. AQS’ credit risk management system incorporates high speed data delivery, custom risk ‘flags’ and a proprietary algorithm to provide the essential early warning.

Elements of AQS’ credit risk management system, to name a few, include:

• Diversification – Portfolios positions are limited by issuer to nominally less than 1%. In practice, these limits are closer to 0.5% of total assets. Portfolio limits are reduced further when capital constraints dictate.
• Sector Allocation – Events in other markets and sectors frequently impact fixed income positions. It is this fundamental relationship of secondary consequence that causes AQS to map interrelated sectors, geography and common reliance.
• Real-Time Quantitative Data – Identifies credit risk at the earliest opportunity. Efficient Market Theory suggests that markets fully reflect known information. AQS reinforces vigorous credit risk management with data access.
• Independent Research – “Trust but verify” – Ronald Reagan. At the core of the credit risk management effort is our credit research, an effort supported by independent sources and corroborated by separate verification.