LONDON--(BUSINESS WIRE)--An A.M. Best analysis of (re)insurers domiciled in the emerging markets of Europe, the Middle East and Africa (EMEA) under the rating agency’s updated Best’s Credit Rating Methodology (BCRM) and its new building-block approach has revealed that 25% of rated companies in this group have Long-Term Issuer Credit Ratings deemed “Excellent”.
The Best’s Special Report, titled, “(Re)insurers in Emerging EMEA Markets – A Building Block Approach,” also indicates that these emerging EMEA companies, in general, have robust balance sheets, strong to adequate operating performance, neutral to limited business profiles and utilize appropriate to marginal enterprise risk management structures. The updated BCRM was implemented on Oct. 13, 2017, and is a reorganization of the previous methodology, utilizing a building-block approach to provide greater detail and clarity to the Credit Rating (rating) analysis. As a result of this new approach, approximately 2% of A.M. Best’s ratings within the emerging EMEA group were placed under review.
A specific benchmarking analysis on the emerging EMEA group determined that only 7.5% were assessed to have balance sheet strength that A.M. Best considers strongest, with the majority of 55.0% falling in the very strong category; the balance included 35.0% deemed strong and only 2.5% assessed at adequate. The composition of balance sheet strength indicates the effect country risk has on the assessment, in addition to quality of assets, reinsurance dependence and strength of reserves, according to Mahesh Mistry, senior director. “These companies are operating in markets with higher levels of investment risk due to illiquidity and concentration, which means capital buffers are required to absorb the additional volatility,” Mistry said.
The primary quantitative tool used to evaluate balance sheet strength is Best’s Capital Adequacy Ratio, which helps determine whether a company’s capitalization is appropriate; however, A.M. Best takes all of the balance sheet components into consideration, as the BCAR itself is not the sole determinant of the balance sheet strength assessment.
Along with balance sheet strength, the key pillars A.M. Best uses in its credit analysis are operating performance, business profile and enterprise risk management. According to the report, approximately 44% of the rated population was perceived to have adequate operating performance, with approximately 44% given an assessment of strong. Most companies rated within the strong category are primarily the leading companies or those companies that have consistently strong and stable earnings in their respective market(s).
A.M. Best executives will present the findings of this report, along with an update on the state of the European (re)insurance sector and London Market, on Wednesday, Nov. 15, 2017, at an insurance market briefing, to be held at ETC Venues St. Paul’s in London.
To access a copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=267880 .
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