Best’s Special Report: Reviewing Best’s Credit Rating Methodology’s Impact on EMEA Credit Ratings

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In the report titled, Reviewing Bests Credit Rating Methodologys Impact on EMEA Ratings, AM Best has reviewed rated companies from a benchmarking standpoint following the publication of the updated Bests Credit Rating Methodology (BCRM) in October 2017.

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Business Wire, Inc.Business Wire, Inc.
Retrieved on: 
Monday, January 7, 2019
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Professional services, Insurance
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United Kingdom, Europe
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Summary
Key Points: 
  • In the report titled, Reviewing Bests Credit Rating Methodologys Impact on EMEA Ratings, AM Best has reviewed rated companies from a benchmarking standpoint following the publication of the updated Bests Credit Rating Methodology (BCRM) in October 2017.
  • The foundational building blocks of this approach are balance sheet strength, operating performance, business profile and enterprise risk management.
  • Companies with exceptionally strong Bests Capital Adequacy Ratio, or BCAR, scores frequently have a small market profile or are in a startup phase.
  • They are subject to greater volatility in capitalisation given their limited size and reduced ability to absorb large losses.


Analysis of 185 (re)insurance groups rated by AM Best across
Europe, the Middle East and Africa (EMEA) shows more diversified groups
tend to produce consistently strong earnings. Meanwhile, emerging
markets are subject to greater volatility, according to research by AM
Best.

In the report titled, “Reviewing Best’s Credit Rating Methodology’s
Impact on EMEA Ratings,” AM Best has reviewed rated companies from a
benchmarking standpoint following the publication of the updated Best’s
Credit Rating Methodology (BCRM) in October 2017. The foundational
building blocks of this approach are balance sheet strength, operating
performance, business profile and enterprise risk management. The types
of companies rated, operating in mature and emerging markets, are
diverse and include reinsurers, insurers, mutuals, captives, credit and
health insurers, takaful operators and protection and indemnity clubs.

Mahesh Mistry, senior director, analytics, said: “Analysis shows that
risk-adjusted capitalisation of over 90% of EMEA-rated companies are
comfortably within the assessment level of strongest. Companies with
exceptionally strong Best’s Capital Adequacy Ratio, or BCAR, scores
frequently have a small market profile or are in a startup phase. They
are subject to greater volatility in capitalisation given their limited
size and reduced ability to absorb large losses.”

The research showed that while most companies in mature and emerging
markets have BCAR assessments at the strongest level, the drivers for
capital requirements differ. Given the heightened volatility and
uncertainty in emerging markets, capital charges for investments in
higher risk countries are greater within the BCAR, which is exacerbated
by concentration charges as the diversity of assets available is limited.

Carlos Wong-Fupuy, senior director, said: “Unsurprisingly, general
insurers within mature markets have low risk asset profiles, with the
vast majority of the risk being borne out of underwriting. Conversely,
for emerging market companies, investment risk tends to be the main
contributor to capital consumption. This is explained by their higher
investment risk profile as they invest in less mature financial markets
and have a desire to try to inflation-proof earnings.”

The report adds whilst the updated BCRM has become more prescriptive in
the way the final rating determination factors in the impact from each
building block and its components, there are always areas open to
analytical judgment.

To access a complimentary copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=281796.

AM Best is the world’s oldest and most authoritative insurance rating
and information source. For more information, visit www.ambest.com.

Copyright © 2019 by A.M. Best Rating Services, Inc. and/or its
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