Ratings and loss metrics
How the loss distribution becomes a probability, severity measures, and a Cork rating.
The rating starts with the estimated chance of permanent loss over one year and then accounts for how severe the loss can become.
Reading the loss distribution
Probability used for the letterLink to this section: Probability used for the letter
The observed P(loss) is the share of simulation paths that finish above the 1% loss threshold.
observed P(loss) = loss-event paths / total simulation pathsThe rating uses a conservative 95% upper estimate to allow for uncertainty from a finite number of simulation paths. The estimate remains above zero when a run observes no loss events.
The rating scaleLink to this section: The rating scale
| Rating | Meaning | Estimated P(loss) |
|---|---|---|
| AAA | Exceptionally low risk | Less than 0.02% |
| AA | Very low risk | 0.02% to less than 0.2% |
| A | Low risk | 0.2% to less than 0.5% |
| BBB | Moderate risk | 0.5% to less than 1% |
| BB | Elevated risk | 1% to less than 5% |
| B | Material risk | 5% to less than 10% |
| CCC | Substantial risk | 10% to less than 30% |
| C | Severe risk | 30% or more |
Severity adjustmentsLink to this section: Severity adjustments
The first letter comes from P(loss). Two severity checks can then lower it by up to two categories.
The expected-loss budget for a rating is half of that rating's upper probability boundary. Reaching the budget lowers the letter once. An average loss above 25% among loss-event paths lowers it once more.
Loss measuresLink to this section: Loss measures
Expected lossLink to this section: Expected loss
Expected loss is the average across every simulation path. It combines the frequency and size of loss.
Conditional lossLink to this section: Conditional loss
Conditional loss is the average among paths that cross the loss threshold. It shows the typical depth after a loss event occurs.
Ninety-fifth percentile lossLink to this section: Ninety-fifth percentile loss
The 95th-percentile loss is the level that 95 percent of paths stay at or below.
Worst-five-percent average lossLink to this section: Worst-five-percent average loss
This is the average loss among the most severe five percent of paths.
Ninety-ninth percentile lossLink to this section: Ninety-ninth percentile loss
The 99th-percentile loss is the level that 99 percent of paths stay at or below.
Loss-adjusted yieldLink to this section: Loss-adjusted yield
Loss-adjusted yield subtracts the model's one year expected loss from a comparable one year net yield. It provides one common-unit view of return and estimated loss. The calculation is shown only when the yield and loss use compatible periods and units.
Rating flagsLink to this section: Rating flags
Flags identify an important assumption, limited cross-check, or sensitivity in the result. The letter remains visible when the model has a supported basis for the assessment.
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