February 22nd, 2011

Navigating the A.M. Best Supplemental Rating Questionnaire Changes

Posted at 1:00 AM ET

Recent changes related to the A.M. Best Supplemental Rating Questionnaire (SRQ) will have a sweeping impact on U.S. property and casualty insurers. Respondents are facing new questions regarding enterprise risk management (ERM), new considerations for workers compensation coverage, and the release of the new version 11 of the RMS RiskLinkTM model, all of which will factor into a company’s A.M. Best rating.

Guy Carpenter is prepared to work with clients to help explain these developments and their implications for insurers, and provide guidance on how they can be best managed to optimal outcomes.

There are three key changes - within the SRQ itself and in the PML model that feeds into it - that have been or are about to be implemented. They are as follows:

RMS’s upcoming version 11

RMS is releasing RiskLinkTM version 11 on February 28, 2011. Early indications are that the average hurricane PML for the industry will increase dramatically — by 25-30 percent. Regionally, the increases could be significantly higher. This will greatly impact some insurers’ responses to the SRQ’s catastrophe-related questions.

A.M. Best’s new ERM questions

A.M. Best has added four new ERM questions covering risk culture, risk assessment and monitoring, economic capital modeling and reserve exposure to unanticipated future inflation. The information provided will be incorporated into the company’s A.M. Best Report on the insurer. Companies need to be prepared to respond to these questions and address these issues, as they are increasingly becoming a part of A.M. Best’s ratings consideration.

A.M. Best’s heightened focus on workers compensation and contractual liability

The SRQ has also been expanded in the area of workers compensation. For this line, it now requests “peak time” PML modeling for workers compensation writers that have earthquake exposure in addition to the “random time” PML that has been requested in the past. The A.M. Best PML that may be stress-tested against BCAR will continue to be on the random time figures. The new request for the notably higher peak time output and its comparison to policyholders surplus; net of inuring reinsurance, may become a discussion point raised by A.M. Best.

We encourage you to engage in discussions with your GC Analytics (SM)  contact at Guy Carpenter.

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