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Auto Insurance

Car insurance in Canada doesn't have to be a confusing endeavour. Learn about the types of insurance available so you have proper coverage throughout the country.

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Picking Insurance

Mandatory auto insurance coverage in Canada takes care of the first insurance choice for you, but what about the other options you have available? Learn about comprehensive and collision options.

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Car Insurance Laws

While specific car insurance laws vary from province to province in Canada, country wide regulations are shared. Learn about car insurance laws to legally operate your vehicle in Canada.

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Choosing Car Insurance in Canada

Choosing car insurance takes some time and comparison to make sure that you're getting the best options available. Your personal situation, where you live, and the type of car you drive all affect the cost of car insurance.

Investing on an insurance policy for your car is definitely a good investment. More importantly,all car owners are required to have one. If you're planning on buying your first car, you should pick a lender that understands your needs and is willing to compromise. Having said that, New Car Canada is absolutely the right choice for anyone looking to buy a car. They provide instant auto loan approval at a rate you can surely afford. Get approved for a new or used vehicle effortlessly. So you have problem with credit approval? You can also check New Car Canada - Bad Credit Car Loans Canada. They give car loans to applicants from Alberta who have bed credit

Read This To Insure Your Auto Loan

Rating agencies are information providers that reduce information asymmetry by judging the quality of an issue or issuer (Ebenroth and Dillon, 1993). In doing so, they can increase transparency in financial markets (Cowan, 1991). However, it is only an opinion based on information available at the time of the analysis and does not imply any obligation for the evaluator if the judgment is not consistent with the issuer or issue's real risk exposure (Krahnen and Weber, 2001). This service is useful if the rating agencies are more skilled than the market in collecting, interpreting, and summarizing available information (Goh and Ederington, 1993). However, if this is the case, the market cannot directly assess the quality of the ratings, with such assessments typically based on the accuracy of ratings issued in previous years (Kuhner, 2001).



At present, supervisory authorities frequently use rating judgments to overcome certain problems in monitoring financial intermediaries and markets: For the first type of supervised entities the rating represents a measure of the risk of the lending portfolio, while for the latter the rating is used to define constraints on portfolio management choices in the asset management industry or delimit the investment opportunities of less financial skilled individuals. The current regulatory framework uses the rating judgments to control banks, insurance companies, other financial intermediaries, listed firms and, more generally, other investment vehicles (Cantor and Parker, 1996).

During the last century rating agencies assumed a primary role in the financial markets, and only for extraordinary events (such as Enron) were they not able to correctly evaluate the risk exposure related to an issuer or issue due to the complexity of the entity evaluated (Sinclair, 2003). The current financial crisis reveals the limits of the evaluation procedure adopted by rating agencies, such as the scenario where judgments based on new information cannot be revised on time (Langhor and Langhor, 2008). Rating industry misjudgments are more frequent in certain business sectors, and structured finance products tend to be more frequently misevaluated during crises (Benmelech and Dlugosz, 2009). Many issues have been downgraded directly from invest - ment-grade to junk bonds, demonstrating the limits of rating agencies in pre - dicting and understanding the default risk related to complex financial products (Coval, Jurek, and Stafford, 2009). Errors repeated by the main rating agencies lead to loss in investor confidence in their service, with a greater impact on agencies that adopt an issuer fee model, and have higher risk of collusion with the evaluated entities (Coffee, 2004).

Nowadays investors are worried about the business models adopted by the rating agencies and interested in understanding the rating procedure adopted and the main drivers of their annual income. The main concern about the rat - ing agency business is that it allows a risky sector, structured finance, to have a greater role in determining overall annual income of the rating agency (Partnoy, 2006): Because the evaluation procedure is less accurate for such complex types of financial instruments, a rating agency focused too much on this sector is less useful in reducing information asymmetry in the financial market.

Moreover, critics of rating agencies question their independence with respect to the main market players (Utzig, 2010), which are generally those customers that request the most services from a rating agency. The issuer fee model is frequently criticized in favor of the user fee model, currently adopted only by small to medium-sized rating agencies that can ensure a degree of independence in the evaluation procedure (White, 2010).

The current financial crisis demonstrates some limits of the current super - visory process that are regarded as among the causes of the systemic crisis (McVea, 2010). Since their inception, supervisory authorities have had oppor - tunities to make direct or indirect intervention in the rating markets: The first method allows direct control of the maximum number of agencies authorized and their evaluation procedures, while the latter assumes that the market is able to efficiently self-regulate itself. Even if the rating market is not too com - petitive with the main entry barrier being a reputational requirement (Guttler, 2005), the supervisory authorities of almost all countries have adopted a mar - ket-oriented approach in which the only direct control applied to the market is represented by accreditation principles that all rating agencies must respect to be recognized for monitoring purposes (Lucas, Goodman, and Fabozzi, 2008). To create other incentives for offering high-quality service to the market, the supervisory authorities periodically publish information about the quality and affordability of the rating judgments defined by different agencies (Committee of European Securities Regulators, 2004).

The USA was the first country to adopt this supervisory approach, with the US Securities and Exchange Commission (SEC) in 1975 defining the cri - teria for a nationally recognized statistical rating organization (NRSRO). In recent years, the same approach has been adopted in Europe, where the Basel Committee has defined comparable requirements for rating agencies to be rec - ognized as external credit assessment institutions. The main aspects considered in identifying higher-quality standards of service are quality and accuracy of judgment and the evaluator's independence from different types of stakehold - ers (Champsaur, 2005).


Rating Agencies and the Rating Service

Financial investors do not have access to the same information set among themselves, and the existence of horizontal asymmetric information (Ramakrishnan and Thakor, 1984) can be a disincentive for capital flows to the financial market and lead to the inefficient allocation of available financial resources (Stiglitz and Weiss, 1981). Information asymmetry increases the impact of a firm's reputation on the cost and amount of capital that can be raised through the financial market: In this scenario, smaller and younger firms are penalized and may be more financially constrained than bigger players (Diamond, 1989).



To overcome the problem of information asymmetry, firms can hire information providers to obtain an objective evaluation of their business. If the market trusts the evaluators, such firms can reduce the cost of capital or increase capital collected by publishing the judgment obtained due to the expected market reaction to any decrease in information asymmetry (Kerwer, 2002).

Rating agencies provide judgments of an issuer or issue that summarize all available public and reserved information (Cowan, 1991). The main advantage of the rating service is the opportunity to signal to the market the expected impact of reserved information without making it public, due to the confidentiality constraint that characterizes the relationship between the entity evaluated and the agency (Goh and Ederington, 1993).

The rating service is not comparable with the (implicit) judgment of lenders due to the different purposes of the evaluations: In the first case the judgment is only an opinion on an issue or an issuer, whereas the latter case involves direct financial exposure for the lender (Krahnen and Weber, 2001). Moreover, the information given to the market by the rating agencies is more clearly readable for those who are not skilled financial investors.


The Rating Service

Rating agencies are information providers that reduce the level of information asymmetry in the market by defining a judgment (the rating) on an issue or an issuer (Ferri and Lacitignola, 2009). A unique definition of the rating service is not available but, on the basis of business declarations given by the rating agencies, some common characteristics can be identified.

A rating is a synthetic judgment that summarizes, using an alphanumeric scale, the main qualitative and quantitative characteristics of an issue or issuer (Nickell, Perraudin, and Varotto, 2000). The agency does not assume any

responsibility for inaccuracy in the rating because they explicitly declare that it represents only an opinion (Bussani, 2010). The judgment is stated using the rating classes (i.e. AAA, BB, A1, etc.) as main segmentation criteria and, when necessary, the agency may offer a more detailed classification using secondary segmentation criteria, defined as notches (i.e. + , - , + / - , etc.). Each agency can define different levels of detail for their rankings, and frequently defines different rating scales for different types of issuers and issues and/or different time horizons



The information given to the market may be supplied by further information about the perspectives of the issue or the issuer that are summarized in the outlook or credit watch. The purpose of these two instruments is the same, but while the first is normally used for medium- to long-term horizons, the latter relates more to the short term (Gropp and Richards, 2001)

The role of qualitative information in defining a rating judgment with respect to quantitative information depends on the rating criteria adopted and is affected also by the characteristics of the entity evaluated (Resti and Omacini, 2001). The rating agencies normally assign a greater role to qualitative data when they think that any change in the qualitative features may impact significantly on the default risk of the issuer or the issue

The service offered by the rating agency is immaterial, and thus the value recognized by the market changes significantly based on the agency's reputation acquired over the years: The more affordable the rating agency is considered, the greater the market reaction to any new information available (Mann, 1999). This reputation mechanism is the main incentive for offering a highuality service to the market because, on the basis of reputation change, an agency can modify market share over time (Kuhner, 2001).

To ensure the usefulness of the service, the agency must constantly monitor the market to modify judgment if any relevant event occurs (Loffler, 2005). The procedure normally implies the use of a watch list that identifies the issuers or issues currently under revision (Hand, Holthausen, and Leftwich, 1992). At the end of the revision process, the rating agency publishes the new ratings and normally, if change is anticipated by an outlook, the market reaction is less significant (Fayez, Wei, and Meyer, 2003).

Independently of the rating agency considered, qualitative and quantitative features impact differently on rating changes. Normally, qualitative changes require more time to be incorporated in the judgment, while quantitative changes are almost immediately recognized in a rating. The different time lags in rating reactions may be explained by examining the characteristics of the information: The first type requires a long time to collect and evaluate, while the latter is standardized and can be immediately included in the rating model (Guttler and Wahrenburg, 2007).

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