AM Best Releases Updated Draft Criteria: Scoring and Assessing Innovation; Proposes Best’s Credit Rating Methodology Revisions

Business Wire

OLDWICK, N.J.--(BUSINESS WIRE)-- AM Best has released an updated draft of its new criteria procedure, “Scoring and Assessing Innovation.” AM Best also has released proposed revisions to Best’s Credit Rating Methodology (BCRM).

AM Best is requesting comments from market participants in the insurance industry and other interested parties on these draft documents, which are available in the methodology section of AM Best’s website, by no later than Oct. 31, 2019.

In the update to the draft criteria procedure, “Scoring and Assessing Innovation,” AM Best has refined the draft to increase transparency further in light of industry feedback and to reflect ongoing internal review and analysis. The draft criteria procedure originally was released for an initial comment period on March 14, 2019. AM Best appreciates the feedback received during this comment period.

Significant changes to the draft criteria procedure since its March 14, 2019, release include the following:

The innovation score and assessment descriptor will not be published at the time the criteria procedure is implemented, as was indicated in the initial draft;
Innovation assessment descriptors were revised to convey more accurately an insurer’s innovation abilities;
Clarification of leadership versus culture was provided to delineate more clearly the elements that will be considered in the assessment of these two components; and
The description of the relationship between a company’s enterprise mission statement and innovation was revised to clarify that there is no expectation for companies to change their enterprise mission statement to explicitly incorporate innovation.

The updated draft criteria continues to focus on AM Best’s evaluation of a company’s innovation level, which will be based on two elements: (1) innovation inputs — the components of a company’s innovation process, and (2) innovation outputs — the impact of the company’s innovation efforts. The resulting innovation score is the sum of these two evaluations.

Historically, AM Best has captured innovation indirectly through the various building blocks of its rating process. The revision of the BCRM incorporates innovation as the ninth subcomponent of the business profile building block. Within its business profile building block, AM Best explicitly will consider whether a company’s innovation efforts, or lack thereof, have had a demonstrable positive or negative impact.

While AM Best believes that the pace of innovation in the insurance industry is accelerating and that an insurer’s ability to innovate is becoming an increasingly important indicator of a company’s long-term financial strength, AM Best does not expect any immediate changes to ratings as a result of the release of the draft criteria procedure.

This draft criteria procedure is available at http://www.ambest.com/ratings/methodology.asp.

Written comments should be submitted by e-mail to methodology.commentary@ambest.com no later than Oct. 31, 2019. When submitting comments to the methodology in-box, commenters have the option of requesting anonymity, but not confidentiality. All comments received through the methodology in-box that do not request anonymous treatment generally will be published in their entirety, with attribution to the author/sender at the time of implementation of the criteria procedure.

Please see the Sept. 13, 2019, Best’s Commentary, titled “AM Best Releases Updated Draft of Innovation Criteria and Revised BCRM for Public Comment,” for a discussion on the most significant changes to the “Scoring and Assessing Innovation” draft criteria procedure. The changes noted in the commentary incorporate AM Best’s review of industry feedback received. To access the full copy of this commentary, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=289746.

A video discussion on this subject with Stephen Irwin, managing director, Credit Rating Criteria, Research and Analytics, is available at http://www.ambest.com/v.asp?v=innovationcriteriaupdate919.

AM Best is a global rating agency and information provider with a unique focus on the insurance industry. Visit www.ambest.com for more information.