New Jersey-based A.M. Best Co. has published its new Country Risk Methodology.
A.M. Best uses country risk analysis to determine how the factors outside an insurer’s control affect its ability to meet its obligations to its policyholders. These analyses include, amongst others, the assessment of local accounting rules, government policies and regulation, economic growth and social stability. Previously using a three-tier scale, A.M. Best now has a five-tier scale and assigns an A.M. Best Country Risk Tier I-V based on each country’s level of risk (I-lowest risk, V-highest risk).
A.M. Best’s Country Risk has never employed a sovereign ceiling or upper limit of ratings for companies in specific countries. Instead, A.M. Best’s Country Risk recognizes the risks common to insurers in any given country and factors them with individual companies’ characteristics to determine the financial strength rating in a global context.
For the first time, A.M. Best’s Country Risk Methodology incorporates a weighting system, which additionally factors the arrangements made by individual companies to mitigate country risk to policyholders such as diversifying invested assets beyond the local markets.
Country risk alone does not predetermine the upper limit of a financial strength rating in any given tier, and the weighting of the application of this methodology is tailored to individual companies where appropriate.
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