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FOR IMMEDIATE RELEASE
OLDWICK - MARCH 09, 2015 11:51 AM (EDT)
A.M. Best is requesting comment from market participants and other interested parties on the new draft criteria report, "Rating Residual Value Insurance."
The criteria report describes A.M. Best's approach to evaluating loss-reserve risk and premium written risk of residual value insurance (RVI). RVI indemnifies an insured against a loss which might occur if the sale proceeds of a physical asset that meets pre-defined return conditions at a pre-defined date is less than the asset's insured residual value. This criteria report highlights rating considerations unique to the evaluation of an RVI book of business – specifically, the calculation of loss-reserve risk and premium written risk, which depends heavily on the quality of the insured assets.
As companies that underwrite RVI are fundamentally insurance companies, Best's Credit Rating Methodology (BCRM) remains the governing document that provides a comprehensive explanation of A.M. Best's general insurance rating process.
This criteria report highlights major considerations in analysis that is performed beyond that of a typical property/casualty writer. It includes, but is not limited to, the following: the analytical framework of RVI portfolio; construction of future market value; Monte-Carlo simulation of RVI claims; and changes to the covariance adjustment formula to reflect correlation between investment risk and reserve risk.
A copy of the draft report is available for download.
This new criteria report is not expected to affect existing ratings. Written comments should be submitted by email to rating.methodology@ambest.com no later than April 10, 2015. The details of any comments received may be made public unless specifically requested to be kept confidential.
A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.