A.M. Best Clarifies the Risk Weighting Given to Sovereign Creditworthiness in Assigning Insurer Financial Strength Ratings
2012-11-08 10:05:18 -
The evolving Eurozone financial crisis has highlighted the difficulties in linking (re)insurer Financial Strength Ratings (FSRs) to the sovereign debt ratings of the country in which an insurer is domiciled or has significant business operations, a new report from A.M. Best Co. finds.
The special report, “A.M. Best Clarifies the Risk Weighting Given to Sovereign Creditworthiness in Assigning Insurer Financial Strength
Ratings”, examines how A.M. Best uses its country risk methodology and model to assess the country specific factors that influence the credit quality of insurers operating in that country.
Stefan Holzberger, Managing Director, Analytics, said: “Country risk factors such as sovereign credit quality affect all companies in a given market, but to differing degrees. Many of these risks can be lessened through diversification or hedging. To impose a ceiling on insurer ratings based on the sovereign debt rating is inappropriate as it ignores meaningful risk management activity at the company level and international diversification.”
The report notes that: “No two companies in a given country will experience the same amount of exposure to the crisis.” The report also highlights how insurers are managing the risks posed by the financial crisis “through prudent enterprise risk management (ERM) and various de-risking activities”.
Roger Sellek, Chief Executive Officer, A.M. Best - EMEA & Asia Pacific, said: “National banks are inextricably interwoven into the financial system of a country. Insurers and reinsurers, by contrast, are long-term buy-and-hold investors with far lower asset leverage. The financial performance of insurance products, particularly non-life products, is not as highly correlated to sovereign credit risk as the performance of products of other sectors of the economy – particularly that of the banking and asset management sectors. Central to A.M. Best’s rating methodology is the ability to differentiate levels of risk exposure among competing insurers in a given market. For this reason, rather than applying a blanket sovereign ceiling to all insurers in a country, A.M.
Best uses a stress testing approach.”
The full report contains more information on A.M. Best’s approach to insurer ratings in the Eurozone. To access a complimentary copy of this report, please visit www3.ambest.com/bestweek/purchase.asp?record_code=206225
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A.M. Best Co.Stefan Holzberger, +(44) 20 7397 0288Managing
Director, Analytics firstname.lastname@example.org
: mailto:email@example.com orA.M.
Best - EMEA & Asia PacificRoger Sellek, +(44) 20 7397
0332Chief Executive Officer firstname.lastname@example.org
: mailto:email@example.com orRachelle
Morrow, +(1) 908 439 2200, ext. 5378Senior Manager, Public
: mailto:firstname.lastname@example.org orJim
Peavy, +(1) 908 439 2200, ext. 5644Assistant Vice
President, Public Relations email@example.com