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

LONDON--(BUSINESS WIRE)-- 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 affiliates.

ALL RIGHTS RESERVED.

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Mahesh Mistry

Senior Director, Analytics

+44 20 7397 0325

[email protected]

Carlos Wong-Fupuy

Senior Director

+44 20 7397 0287

[email protected]

Yvette Essen

Director, Research, Communications &

Media – Europe, Middle East & Africa

+44 20 7397 0322

[email protected]

Edem Kuenyehia

Director, Market Development &

Communications

+44 20 7397 0280

[email protected]

Source: AM Best