A.M. Best Co. is requesting comments from market participants in the insurance industry and other interested parties on the draft criteria report, “BCAR for Title Insurance Companies.”
In the draft criteria report, edits have been made to make the approach for evaluating U.S. surplus notes in Best’s Capital Adequacy Ratio (BCAR) consistent with the approach explained in the new criteria report, “Evaluating U.S. Surplus Notes.” The updates are part of A.M. Best’s continual review of its rating methodology and are not considered material or expected to affect the vast majority of ratings.
Visit www.ambest.com/ratings/methodology to download a PDF copy of the draft report. Written comments should be submitted by email to [email protected] no later than Feb. 20, 2014. The details of any comments received may be made public unless specifically requested to be kept confidential.
According to a paper dated Aug. 2, 2013, A.M. Best’s interactive rating process for title insurance companies is intended to provide an opinion on a company’s ability to meet its ongoing obligations to policyholders. The evaluation of a company’s financial strength is based on an in-depth analysis of its balance sheet strength, operating performance and business profile. These three components are then compared with AM Best’s quantitative benchmarks and qualitative standards to assign financial strength (FSR) and issuer credit ratings, (ICR).
BCAR for Title Insurance Companies, Introduction to AM Best Rating Process
A.M. Best’s capital formula uses a risk-based capital approach whereby net required capital is calculated to support two broad risk categories: underwriting risk and asset risk. It also contains an adjustment for covariance, reflecting the statistical independence of the individual components. A company’s adjusted surplus is divided by its net required capital, after the covariance adjustment, to determine its BCAR.
BCAR is a key component of an evaluation of a company’s balance sheet strength, which evaluates and quantifies the adequacy of a company’s risk-adjusted capital position.