Risk managers should look beyond insurer financial-strength ratings as they strive to assess the security behind their insurance programs, according to a new Business Insurance research white paper.

While rating agencies continue to provide valuable assessments of insurers, they missed key developments at several commercial insurers during the recent financial crisis, the paper notes.

The white paper, “Counterparty Risks: How to Avoid Weak Insurers and Find Strong Ones,” advises risk mangers to look at a range of financial indicators in addition to traditional ratings as they seek to protect their organizations.

Key indicators of an insurer's financial strength include:

By conducting their own analysis of these key measures, risk managers can gain greater comfort that the insurers on their programs will be able to pay future claims, the paper finds.

In addition, if an insurer does fail, risk managers should have strategies in place to mitigate their counterparty exposure, according to the paper.

Diversified programs, drop-down coverage, cut-through endorsements and cancellation clauses are some of the strategies that risk managers can use to minimize their potential losses in the event of insurer insolvencies.

For information on rating agency weaknesses, how to reduce counterparty risks, strategies to manage the risks and more, see www.business insurance.com/whitepapers.