A.M. Best Co. has announced details of recent updates in its analysis of the “dynamics within insurance groups and the relationships between affiliated companies,” acknowledging that these relationships “continue to evolve.”
Best noted that the “level of support companies are willing to provide to subsidiaries or affiliates has developed substantially over the past five years. In particular, the use of support agreements, especially guarantees, continues to grow in the insurance industry.”
The rating agency said that in recognition of these trends, it has “updated its policy on the level of rating consideration for both explicit support–capital infusions, guarantees, pooling arrangements and reinsurance support–and implicit support–the anticipated future support likely to be available due to a subsidiary’s strategic and/or financial importance within the group.”
Best’s latest methodology report, Rating Members of Insurance Groups, reviews how ratings are assigned to operating units that comprise an insurance group. It described the revised criteria and considerations as follows:
“While A.M. Best recognizes that no two groups of insurers operate or are managed in the same fashion, certain factors must be present for ratings to reflect group affiliation. In general, eligible groups are those where two or more insurers operate under common ownership (in excess of 50%), common management, common strategy and other substantial form of common corporate governance or functional area of operations.
For groups with multiple core businesses, A.M. Best’s consideration for rating uplift would apply to each company or group of companies serving those core business segments. In some cases, it might be possible for a market or business to be core to an organization, but the subsidiary operating in that market or business may not be viewed as core by A.M. Best after reviewing the subsidiary’s market position and current operating performance relative to the group.
A.M. Best’s rating approach involves comprehensive quantitative and qualitative analyses of an organization’s balance sheet strength, operating performance and business profile.
For clarity within this report, the major insurance company within a group of affiliated companies or the lead company of a pooling arrangement is referred to as the “parent.” While this might not always be the case, as the pooled companies could be sister affiliates, the analytics are similar to a parent-subsidiary relationship.
When assigning ratings to companies with a group affiliation, A.M. Best’s approach involves an analysis of:
1. Each operating unit within the group on a stand-alone basis.
2. The parent organization on a consolidated basis.
3. Each operating unit’s strategic importance and the level of parental support it receives.”
For more information on A.M. Best’s rating methodologies or to download a copy of this full methodology report, visit http://www.ambest.com/ratings/methodology.html.
Topics AM Best
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