A.M. Best - What is your Risk Profile?
Preparing for an A.M. Best review starts with the obvious question, “What will the rating agency look at?” Earlier this year, A.M. Best began a discussion about a new feature they will use when assessing U.S. P&C companies' financial strength.
Best identified 15 risk profile characteristics to gauge how a company identifies, measures and manages each. Using a scale of minimal, low, moderate and high, A.M. Best will measure risk profiles for:
- Line of Business
- Correlation of Lines of Business
- Frequency and Severity of Claims
- Policy Limits
- Product/Coverage Changes
- Legislative and Regulatory Environment
- Judicial Environment
- Financial Flexibility
- Economic Environment
- Data Quality
- Reinsurance Use, Quality and Impact
A.M. Best will then assess whether a company's risk management capability matches its risk profile. The higher the risk profile, the higher the level of risk management capability A.M. Best will want to see. If A.M. Best’s estimation of the company's risk management is out of synch with the risk profile, it will have implications for the rating - a high risk profile with a weak risk management capability would be negative, but the opposite can be true also - a low risk profile with a superior risk management capability implies a positive rating factor.
Watch for a new section in your A.M. Best corporate profile this year - Risk Management.