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Questions and answers
Questions and Answers about Your Annual Risk Rating
Risk rating is a technique the Agency for Co‑operative Housing uses to see how stable your co‑operative is. It is a way to measure your financial strength that helps us assess your co‑op’s capacity to pay its bills and provide housing of good quality, now and in the foreseeable future. The final result of the Agency’s risk-rating process is a composite risk rating for each co‑op. Important as it is, risk rating does not reveal the whole truth about your co‑op. It has nothing to say about member involvement or the richness of your community life. Risk rating makes no definite statement about the quality of your management or governance or whether your co-op is following its CMHC agreements. Compliance is discussed in a different report. 2. How does risk rating help my co-op? Our composite risk rating gives your co‑op the recognition it deserves when it is operating well. The Agency hopes that a risk rating of Low or Moderate will encourage the best-run co-ops to keep up the good work and aspire to do even better. At the least, a risk rating of Above Average is a warning signal that a co-op is not as healthy as it could be. By sharing this rating with a co-op, we hope to help the co-op’s board recognize a growing problem. The co-op may need to take corrective action with support from the Agency and perhaps CHF Canada or a local federation. Or it may be able to steer carefully through a weak market or a period of physical renewal. Our risk rating can also point to danger signs that confirm the existence of more serious difficulties. A rating of High tells you that the co‑op needs to address its problems without delay if it is to continue operations over the long term. The Agency’s risk assessment also shows how a co-op’s health is changing over time and what it will look like if the trend continues. This information may tell co-ops more than a snapshot taken at a particular moment. 3. How did the Agency come up with my co-op’s composite risk rating? The Agency used several tools to build your co‑op’s composite risk rating:
4. Will our rating change before next year? If new information on your co‑op’s condition or operations comes to the Agency’s attention or the co‑op takes action on problems the risk assessment has brought to light, your composite risk rating could change during the year. 5. What do these ratios and ratings mean? Liquidity Ratio The ratio is complex, so we have posted it on our website for those who would like to view it in more detail. Net-Income Ratio Physical-Condition Rating 6. What are the possible composite ratings? There are four possible composite risk ratings and three trends:
The full definitions are available on our website at http://www.agency.coop/pages/en/what1.asp#risk. 7. What does the Agency mean by trend? The Agency has fine-tuned the risk assessment to show how the situation of a co-op is changing over time and where it is heading. We have started to talk about trends because the liquidity and physical-condition ratings are slow to change. Over several years a co-operative can work hard to improve its operations without much movement in either of these indicators. Even improving the net-income ratio can take several years. Yet, although the building blocks of the co-operative’s risk assessment have not changed, a relationship manager knows when a co-operative’s situation is Strengthening. Trend analysis allows the Agency to identify and acknowledge a co-op’s improving circumstances, even if its risk profile is unchanged. The risk trend of Stable indicates that there is little change in the co-operative’s situation, which can be good or bad, depending on its risk rating. Where the risk rating is positive, so is a Stable situation, which shows that the co-operative is continuing to manage its finances effectively and take good care of its property. However, a Stable situation is not good where a co-operative has a risk rating of Above Average or High. This rating suggests either that the co-operative needs to do more to solve its problems, or that it is successfully keeping its operations from worsening while it works on solutions. Nothing good can be said about a risk trend of Weakening. This score is a red flag for any co‑operative with a positive risk rating, suggesting that it should look to the flaws in its management and governance before its problems grow. If the trend continues, the co‑op’s membership will lose the benefits of the good decisions and hard work in past years that earned the co-operative its positive risk rating. A risk trend of Weakening is even more serious in a co-operative risk rated Above Average or High. This rating warns that its management may not be effective enough for its challenging situation. 8. Was this all the Agency looked at? At the same time we carried out a risk assessment of your co‑op, the Agency also checked that you had been doing what you said you would when you signed your operating agreement with CMHC. (We call this a compliance review). This review does not have the same focus as our risk assessment, but it could influence your composite risk rating. The results appear in a separate report. 9. Who gets to see all this information? The Agency protects your co-op’s composite risk rating and other data. This information is not available to the general public, although your co-op’s results will be combined with those of other co-ops in our public reports about how different groups of our co-op clients are performing. The Agency will only share your co‑op’s individual risk rating with
To find out more about our rating system and how we use the results, visit our website at www.agency.coop or contact your co-op’s relationship manager at the Agency. |
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Feedback | Privacy | Important messages Updated: October 2, 2011 |
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