AM Best Seeks Input on Updates to Alternative Risk Transfer Criteria

AM Best's Call for Comments on ART Methodology Updates

AM Best, a globally recognized credit rating agency in the insurance sector, is reaching out to market stakeholders, including insurance professionals and other interested groups, to gather opinions on a newly drafted update to its criteria for "Alternative Risk Transfer (ART)." This important draft update will be placed on their methodology section until a designated date.

Key Updates to ART Methodology

The essence of the proposed revision is to rename the ART procedure to “Rating Captives and Other Alternative Risk Transfer Entities.” This change signifies AM Best’s intention to create a more defined and clear method for allocating Financial Strength Ratings (FSRs) and Issuer Credit Ratings (ICRs) to incorporated cell entities.

New Definitions and Structures

One of the pivotal updates involves the introduction of name definitions for cell companies and an explanation of the various cell structures that are prevalent in the insurance industry. With these definitions, stakeholders will better understand how AM Best evaluates the operational and legal frameworks of these entities.

Mapping Unincorporated Cell Companies

Additionally, the draft will illustrate how AM Best's credit rating methodology classifies certain factors concerning unincorporated cell companies. This will aid in understanding how these entities can qualify for ratings based on their individual characteristics.

Setting Operational Baselines

A baseline operational level has been suggested, which must be met for individual incorporated cells to be eligible for rating assignments. This ensures that all cell entities are assessed fairly and in a consistent manner.

External Verification

Furthermore, AM Best's analytical teams are anticipated to collaborate with external parties to validate the operational and legal capabilities of a cell entity. By doing this, the agency aims to strengthen the reliability of its ratings.

The Weakest-Link Approach

AM Best affirms that the methodology's weakest-link principle is still applicable to unincorporated cell companies. This means that the ratings of these entities will continue to reflect the relatively weaker components, ensuring a comprehensive assessment approach.

Submission of Comments

Participants wishing to contribute thoughts on the methodology can submit their comments through specified channels. They have the option to allow public disclosure of their comments along with their contact information, permit public availability while keeping their identity anonymous, or confidentially submit their input without any publication.

Important Submission Guidelines

Written feedback is requested by a specific deadline, with distinct email addresses provided for each comment submission method. This allows for a clear and efficient process for collecting and addressing industry perspectives.

About AM Best

AM Best stands as a global leader in credit ratings, news publishing, and analytics, tailoring its services for the insurance market. With its headquarters in the United States, AM Best operates in more than 100 countries and has multiple regional offices across major international cities. For those interested in learning more about AM Best’s services and recent updates, visiting their website can provide further insight.

Frequently Asked Questions

What is the purpose of AM Best's new draft update?

The draft update aims to refine the criteria used for evaluating Alternative Risk Transfer entities, making the methodology clearer and more effective.

How can stakeholders provide their input on the changes?

Stakeholders can submit their comments through specified email addresses based on their preference for confidentiality or public disclosure.

What does the weakest-link approach mean for unincorporated cell companies?

The weakest-link approach suggests that the ratings of unincorporated cell companies will reflect the least favorable aspects of the entity's overall structure.

Are there changes expected to affect existing ratings?

AM Best does not anticipate that the proposed revisions will have any effect on currently published ratings.

Where can I find more details about AM Best?

For more information, you can visit AM Best's official website to access their services and methodology updates.

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