A.M. Best’s proposed stress testing to take company’s catastrophe management history into account

A.M. Best’s proposed methodology for natural catastrophe stress-testing takes into account a company’s prior history in a natural catastrophe situation.
The draft proposal was developed based on analysis regarding reinsurance recoverable payment patterns related to several natural catastrophe events in recent years, the company adds.
The ratings agency went on to note in its Draft: Natural Catastrophe Stress Test Methodology that a company’s catastrophe management capability and the level of data quality are important in the assessment of capital needed to offset catastrophe risk.
Under the proposed model, there is a greater tolerance in terms of the stress test for companies that have previously shown good risk management in terms of data quality and monitoring of exposures.
“A.M. Best will continue to put significant emphasis on catastrophe management, using both the standard and stress-tested views of risk-adjusted capitalization,” the ratings agency says in its draft proposal.
A.M. Best is requesting comments from the insurance industry on its proposed update to the natural catastrophe stress test methodology.
The draft is available on the company’s credit rating methodology section of it’s homepage. To download a PDF, log on to www.ambest.com/ratings/methodology.asp.
Written comments can be submitted by email to methodology.commentary@ambest.com no later than Jun. 26, 2009.