TransUnion Risk Indices on Credit and Insurance Diverge, Suggest Improving Risk Conditions Nationally

Chicago – TransUnion reported that during the third quarter of 2009 two of its proprietary risk indices used to manage portfolio risk, the Credit Risk Index (CRI) and the Insurance Risk Index (IRI) diverged suggesting that U.S. risk conditions are beginning to improve. 

During the third quarter of 2009, TransUnion’s Credit Risk Index increased nationally 0.8 percent to 129.3 from 128.3 in the previous quarter. The Insurance Risk Index decreased 0.1 percent from 99.6 in the second quarter of 2009 to 99.5 in the third quarter of 2009. The last time these two risk indices went in different directions was during the first quarter of 2007, prior to the current recession.

“After several quarters of significant increases in the credit and insurance risk indices, it appears that the financial recovery is gaining momentum, as consumers are adapting their debt management approaches to cope with the difficult economic times we are experiencing,” said Chet Wiermanski, global chief scientist at TransUnion.  “In particular, the broad geographic decline in 48 states of the Insurance Risk Index is very encouraging.”

TransUnion Credit Risk Index – Statistics

From a lending perspective, the Credit Risk Index continued its climb reaching an all-time high at the national level for the fourth consecutive quarter; however, the growth rate continued to decelerate, with five states (Connecticut, North Dakota, Pennsylvania, West Virginia and Wisconsin) experiencing quarterly declines.

The rate of increase between the second and third quarters for the Credit Risk Index was the lowest since the beginning of 2008, when the nation experienced a 2.61 percent decline from 120.89 to 117.74.  On a year-over-year basis, the Credit Risk Index increased 9.81 percent (from 117.74 in the third quarter of 2008).

On a state basis, Mississippi continues to rank as the riskiest state, from a credit risk perspective, with a Credit Risk Index of 167.22.  It is followed closely by Nevada (163.96) and Texas (163.35).  Continuing from the previous quarters, the least risky states are concentrated in New England and the Upper Midwest areas of the country, with North Dakota coming in at 82.06, Minnesota at 90.51 and Vermont at 93.77.

TransUnion’s Insurance Risk Index – Statistics

From an insurance risk perspective, the Insurance Risk Index posted its first noticeable decrease since the fourth quarter of 2007.  More importantly, every state, except Nebraska and the District of Columbia, exhibited a decline from the previous quarter.  Year over year, the Insurance Risk Index logged an increase of only 0.4 percent from 99.1 in the third quarter of 2008. The index is designed to show the relative expected loss ratio for market segments throughout the country. Benchmarked to the U.S. national average of 100 as of March 31, 2001, the Insurance Risk Index facilitates comparisons across geographies and demographic segments. For example, a state with an index of 110 is 10 percent riskier than a state with an index of 100.  

Montana continues to rank as the riskiest state with an index of 109.52. It is followed by Washington (105.81), Mississippi (102.95) and Arkansas (102.00). The states demonstrating the least risk from an insurance risk perspective are Alaska (95.16), Minnesota (95.33), Massachusetts (95.51) and Hawaii (96.00).

“The key ingredient within the Insurance Risk Index is TransUnion’s insurance risk scores, which are heavily influenced by the length and stability of responsible credit performance. To the contrary, the Credit Risk Index places a great deal of emphasis on a variety of indebtedness and credit utilization measures, key ingredients in TransUnion’s generic credit risk scores.  This is why these indices can move in opposite directions,” Wiermanski added.  

Analysis

“As the economy continues to steadily improve, we anticipate that the Insurance Risk Index will continue to remain flat, possibly decreasing over the next few quarters, if employment improves. On the other hand, TransUnion is expecting the Credit Risk Index to continue to increase for the remainder of 2009 at a continuing decelerating rate. TransUnion also anticipates a greater number of states to show improved credit risk index levels in the coming months,” said Wiermanski.

The indices can be used by financial and insurance institutions to better manage portfolio risks and marketing efforts due to their consistent ability to break down risk by demographic segments and geographic regions.

TransUnion’s Trend Data database

The source of the underlying data used for this analysis is TransUnion’s Trend Data, a one-of-a-kind database consisting of 27 million anonymous consumer records randomly sampled every quarter from TransUnion’s national consumer credit database. Each record contains more than 200 credit variables that illustrate consumer credit usage and performance. Since 1992, TransUnion has been aggregating this information at the county, Metropolitan Statistical Area (MSA), state and national levels. www.transunion.com/trenddata

The Credit Risk Index uses the fourth quarter of 1998 as a baseline for comparison. Therefore, it measures changes in consumer credit score distributions relative to the national distribution and delinquency rates as a whole at the end of 1998. TransUnion considered 1998 as a representative year of credit performance within the usual dynamic of the historical credit cycle.

The Insurance Risk Index, which was developed from observed insurance loss ratio performance uses the first quarter of 2001 as a baseline, measuring changes in consumer insurance score distributions relative to the national distribution as a whole at the beginning of 2001. A value of more than 100 from either index represents a higher level of relative risk.  

About TransUnion
As a global leader in credit and information management, TransUnion creates advantages for millions of people around the world by gathering, analyzing and delivering information. For businesses, TransUnion helps improve efficiency, manage risk, reduce costs and increase revenue by delivering comprehensive data and advanced analytics and decisioning. For consumers, TransUnion provides the tools, resources and education to help manage their credit health and achieve their financial goals. Through these and other efforts, TransUnion is working to build stronger economies worldwide. Founded in 1968 and headquartered in Chicago, TransUnion employs associates in more than 25 countries on five continents. www.transunion.com/business