The above rating definitions are paraphrases of the definitions published by Standard and Poor�s. Duff and Phelps uses virtually the same rating categories and definitions.

Moody�s and A.M. Best use categories and definitions that are similar to those used by Standard and Poor�s and Duff and Phelps. The principal differences are in category designations, as follows:

The rough equivalences of the A.M. Best and S&P categories are shown in table 31-1.

The distribution of A.M. Best�s ratings and those of the three multi-industry rating services as of late 1991 are shown in table 31-2.

Although there are differences in the distribution of the four services� ratings, be careful in drawing conclusions from this comparison because the population of the companies rated by any two rating services differs, sometimes significantly. Given that the risk of failure to meet policyowner obligations differs very little between the top three broad rating classes (AAA, AA, and A), the industry as a whole is highly rated in its capacity to meet policyowner obligations.

When there has been a material change in the company�s circumstances that the rating agency has not had the opportunity to evaluate fully or if there are expected future events that could have a significant effect on the company�s position, the rating agency will often place the company on a watch list. The

published notice of this action will usually indicate whether there are positive, negative, or developing expectations. An expected capital contribution from a parent company is a positive future event; reported losses from a natural disaster that are materially higher than would have been expected for that company is an example of a negative event that will require additional evaluation.