A.M. Best Details Catastrophe Stress Test Criteria

A.M. Best Co. has published an outline of the criteria it looks for when evaluating the strength of an insurance company’s catastrophe risk management.

Last month, A.M. Best hosted a conference call on the recent modifications it made to its catastrophe stress test. During the discussion, A.M. Best said that it believes overall catastrophe management through underwriting, loss mitigation, exposure management and reinsurance or retrocessional reinsurance is critical to any company with significant catastrophe exposure within its operating market.

A.M. Best said that its confidence in a company’s catastrophe exposure management, along with its ability to replenish any lost capital following a catastrophe, play a major role in the final view of a company’s capital needs and A.M. Best’s willingness to reduce its stressed capital requirements.

The rating firm has published “Catastrophe Risk Management Incorporated Within the Rating Analysis,” which explains the criteria it considers. Catastrophe risk management is evaluated relative to these criteria and considered along with the financial flexibility of a company to determine its ability to first, avoid a material loss to capital, and second, to respond to any significant capital deterioration from such an event.

For more information on A.M. Best’s rating methodologies or to download a copy of this methodology report, visit http://www.ambest.com/ratings/methodology.asp.

Source: A.M. Best