AM Best Seeks Comments on Update to Its ART Criteria Procedure

AM Best is requesting comments on a draft update to its criteria procedure, "Alternative Risk Transfer (ART)," which is available on the methodology section of the rating agency's website until February 20.

The main proposed update to "Alternative Risk Transfer (ART)"—which will be renamed "Rating Captives and Other Alternative Risk Transfer Entities"—establishes a clear approach from AM Best to assigning Financial Strength Ratings (FSRs) and Issuer Credit Ratings (ICRs) to individual incorporated cell entities, the rating agency said.

Best said changes in the draft of the ART criteria include the following.

• Name and define cell companies and the various cell structures used in the insurance industry
• Map out how specific factors of unincorporated cell companies and individual incorporated cell entities are viewed within Best's Credit Rating Methodology (BCRM) and support a path to assigning FSRs and ICRs
• Set a baseline operational level for individual incorporated cells to be considered for rating assignment
• Establish that AM Best analytical teams will likely use external parties to aid in the confirmation of a cell entity's baseline operations and legal capabilities
• Affirm that the weakest-link approach remains the path to rating unincorporated cell companies
• Add an appendix supporting data requests of cell companies

Best said it does not expect the revisions to "Alternative Risk Transfer (ART)" to have an impact on any published ratings.

The draft criteria and information on submitting comments are available on the AM Best website. Written comments should be submitted by February 20.