Which characteristics does an insurance company assess prior to issuing a bond?

When an insurance company assesses characteristics prior to issuing a bond, they often focus on capital, character, and capability.

Capital refers to the financial resources and stability of the company or individual seeking to issue the bond. This is crucial, as it helps the insurer evaluate the risk of default based on the issuer’s financial strength.

Character involves assessing the issuer's creditworthiness, including their history of repaying debts and the trustworthiness of management. An issuer with a strong character is typically seen as less risky from an underwriting perspective.

Capability assesses whether the issuer has the operational capacity to meet their obligations. This includes analyzing their business model, industry conditions, and any external factors that might impact their ability to service the debt.

These three characteristics are fundamental because they collectively help the insurance company determine the likelihood that the bond will be repaid as promised. By examining these aspects, the insurer can make a more informed decision about whether to underwrite the bond, how to set the interest rates, and what terms should be included.