AM Best Requests Comments on Proposed Revisions to Best’s Credit Rating Methodology, Available Capital and Holding Co Analysis

CONTACTS:

FOR IMMEDIATE RELEASE

OLDWICK - FEBRUARY 28, 2023 09:56 AM (EST)
AM Best is requesting comments from market participants in the insurance industry and other interested parties on the draft updates for Best’s Credit Rating Methodology (BCRM) and the criteria procedure “Available Capital and Holding Company Analysis” (to be known as “Available Capital and Insurance Holding Company Analysis”).

These draft documents are available in the methodology section of AM Best’s website. Comments are requested by no later than March 31, 2023.

The main updates to BCRM focus on Section IV: Insurance Holding Company and Issue Credit Ratings. There are no changes to the core components of the analytical process—balance sheet strength, operating performance, business profile and enterprise risk management—which remain the key pillars of the analysis. The proposed changes are primarily related to the notching used to derive the Long-Term Issuer Credit Rating (Long-Term ICR) of an insurance holding company.

Changes into the draft of the updated BCRM include the following:

• Discussion of regulation in the criteria and the implementation of newly developed AM Best classifications of insurance groups, largely determined by their regulatory environment, using the terms: Collective Capital Management Groups and Entity Prioritized Structures


• Introduction of a new table to reflect narrower notching for those groups classified as Collective Capital Management Groups


• Detail on the treatment of groups across multiple operating environments and intermediate insurance holding companies

In the draft of the updated criteria procedure, “Available Capital and Insurance Holding Company Analysis,” AM Best has made revisions for purposes of clarification and increased transparency. The revisions consider the latest capital structures, instruments and features inherent in the insurance market. The clarifications in criteria do not change AM Best’s approach to ratings analysis.

Changes in the draft of the updated “Available Capital and Insurance Holding Company Analysis” criteria procedure include the following:

• Elaboration on the importance of regulation for the treatment of debt in credit rating analysis


• Clarity on the treatment of downstreamed debt in Best’s Capital Adequacy Ratio (BCAR)


• Clarity on the treatment of service-oriented activities in the analysis of insurance holding companies


• Clarity on the treatment of perpetual preferred shares


• Further consideration of certain instruments’ features


• Change of the criteria title to “Available Capital and Insurance Holding Company Analysis”

The revisions to the BCRM are expected to result in a recalibration of a small portion of AM Best’s credit ratings. Each rating potentially impacted by the updated BCRM will be subject to the full rating committee process under the revised criteria. A review of the affected ratings will be completed within six months from the effective date of the methodology. AM Best expects that less than 5% of its published ratings will be affected. Any ratings that are ultimately recalibrated as a result of these revisions to the BCRM will not reflect a change in credit quality.

AM Best does not expect that the implementation of the proposed revisions to “Available Capital and Insurance Holding Company Analysis” will result in changes to any published ratings.

This draft criteria procedure is available at https://web.ambest.com/ratings-services/rating-methodologies .

When submitting comments to the methodology in-box, commenters can select one of the following three options: Allow my comments to be made public and include my contact information; allow my comments to be made public but keep my contact information anonymous; or do not publish my comments (confidential). Written comments should be submitted no later than March 31, 2023, by e-mail to one of the following email addresses based on your selection:

• To allow your comment to be made public, including your contact information, please email Methodology.Public@ambest.com .


• To allow your comment to be made public, but keep your contact information anonymous, please email Methodology.Anonymous@ambest.com .


• To not publish your contact information or comments and keep all information confidential, please email Methodology.Private@ambest.com .

A video discussion on this subject with Mahesh Mistry, senior director, credit rating criteria, and Mathilde Jakobsen, director, analytics, both of AM Best, is available at http://www.ambest.com/v.asp?v=ambholdingscocriteria223 .

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.