Effects of Analysts' Ratings on Insurer Stock Returns: Evidence of Asymmetric Responses

We examine the information value contained in insurer rating changes. Using a contemporary event study approach, we document an asymmetric reaction of stock prices to rating changes: downgrades cut share prices by approximately 7 percent but upgrades have little significant effect. This result varies across agencies as share prices react more strongly to A.M. Best and Standard & Poor's downgrades than to Moody's. We observe a similar asymmetric reaction to rating changes subject to a common rating benchmark. Finally, we find that prices fall most dramatically when a rating downgrade from one rating agency follows a downgrade from another agency. Copyright (c) The Journal of Risk and Insurance, 2010.