The BILSM provides an outline and summarization of the methodology A.M. Best utilizes to rate insurance-linked securities and insurance-linked structures (ILS). This methodology offers readers insight into information requirements, key rating considerations, risk modeling and surveillance activities that are generally applied by A.M. Best to rate ILS transactions. Best's Idealized Issue Default Matrix and Best's Idealized Issuer Default Matrix are included within the BILSM.
In some cases, ILS transactions are rated using structured finance technology by considering the credit profile or risk characteristics of the assets, liabilities, triggers or legal structure that affects the payment of interest and principal to investors. These transactions would be evaluated using this methodology, along with the supplemental ILS Transaction criteria procedures listed below.
In other cases, ILS transactions that have the "look and feel" of an insurance company are rated based on a set of methods that may also include structured finance technology, and while less emphasis may be placed on certain factors such as financial flexibility and/or business profile, these types of transactions will be evaluated based on Best's Credit Rating Methodology (BCRM), and its supplemental criteria procedures.
The BILSM and supplemental criteria procedures are available as pdf documents below.
Note: Effective June 15, 2015, A.M. Best Company, Inc. and its credit rating agency subsidiaries (AMB) released a guide for the use of Credit Rating opinions produced by AMB titled "Understanding Best's Credit Ratings" (UBCR). This new document aggregates existing information (processes, terminology, scales and other rating-related information) historically found in various locations throughout the AMB website or in print publications. UBCR was created to provide a clear and concise central source of information for the users of Best's Credit Rating opinions. In addition, UBCR amended terminology which includes, in some cases, the renaming of an existing term.
Effective with the release of UBCR, the term "Debt Rating" was renamed using the term "Issue Credit Rating". Historically, the term "Debt Rating" reflected the assignment of an AMB Credit Rating opinion that could be applied to various issues that included both debt and other securities such as commercial paper or types of preferred securities with debt-like characteristics, but are not technically debt instruments. The move to the "Issue Credit Rating" terminology provides additional clarity for the use and assignment of a debt or securities rating, i.e. "Issue Credit Rating", as the broad connotation of the term "Issue" more accurately reflects its development and industry usage. In conjunction with the release of UBCR, AMB initiated an exercise to revise previously published terminology that has been affected though the release of the revisions included in UBCR. It is likely that, in some AMB publications or displays, including but not limited to web displays, rating criteria, rating policy, special reports or other publications, the term "Debt Rating" may still be displayed. If present, the term "Debt Rating" should be construed to be the term "Issue Credit Rating" as defined in UBCR.