<P> A.M. Best defines "country risk" as the risk that country - specific factors could adversely affect an insurer's ability to meet its financial obligations . </P> <P> A rating expresses the likelihood that the rated party will go into default within a given time - horizon: 1 year (short - term) or above (long - term). In the past institutional investors preferred to consider long - term ratings . Nowadays, short - term ratings are commonly used . </P> <P> Credit ratings can address a corporation's financial instruments i.e. debt security such as a bond, but also the corporations itself . Ratings are assigned by credit rating agencies, the largest of which are Standard & Poor's, Moody's and Fitch Ratings . They use letter designations such as A, B, C. Higher grades are intended to represent a lower probability of default . </P> <P> Agencies do not attach a hard number of probability of default to each grade, preferring descriptive definitions such as: "the obligor's capacity to meet its financial commitment on the obligation is extremely strong," or "less vulnerable to non-payment than other speculative issues ..." (Standard and Poors' definition of an AAA - rated and a BB - rated bond respectively). However, some studies have estimated the average risk and reward of bonds by rating . One study by Moody's claimed that over a "5 - year time horizon" bonds it gave its highest rating (Aaa) to had a "cumulative default rate" of 0.18%, the next highest (Aa2) 0.28%, the next (Baa2) 2.11%, 8.82% for the next (Ba2), and 31.24% for the lowest it studied (B2). (See "Default rate" in "Estimated spreads and default rates by rating grade" table to right .) Over a longer period, it stated "the order is by and large, but not exactly, preserved". </P>

The credit ratings provided by standard & poor's moody's and fitch are intended to indicate