A.M. Best releases methodology for rating securities

Criteria for rating securities collateralized by reinsurance recoverables has been described in a methodology released by A.M. Best Co., Securitization of Reinsurance Recoverables.
This methodology outlines A.M. Bests criteria in rating securities that are backed by reinsurance recoverables.
A large part outlines the conditions under which insurers or reinsurers will be unable to fulfill their financial obligations according to A.M. Bests determinations highlighting the difference between the typical capital markets definition of default and impairment, according to a release. A.M. Best considers impairment to be the best way of measuring ones inability to pay.
A.M. Bests definition of impairment of insurers and reinsurers includes defaults on financial obligations as generally recognized by the capital markets, as well as any type of publicly disclosed regulatory intervention in the operation of an insurance company, an A.M. Best release states. The unwillingness to pay on obligations, which can arise in reinsurance agreements, is explicitly excluded from the definition of impairment.
Using data obtained from studies conducted by A.M. Best, in addition to using the definition of impairment as a benchmark, two tables are published which A.M. Best uses for assigning credit risk to insurance industry obligations in securitization: Bests Idealized Default Rate of Insurers and Bests Idealized Default Rate of Reinsurers.
To download a copy of the methodology log on to http://www.ambest.com/ratings/methodology