A.M. Best Enterprise Risk Model Offers New Insight Into Risk-Adjusted Value of Company Earnings; Developed With Seabury Insurance Capital.Business Editors OLDWICK, N.J.--(BUSINESS WIRE)--July 2, 2001 A.M. Best Co. has announced the introduction of a new analytical model that provides a common standard for insurance companies worldwide to assess and manage risk and capital demands. The A.M. Best Enterprise Risk Model (Best's ERM (Enterprise Relationship Management) An umbrella term with many shades of meaning over the years. It may refer to the management of information from any or all of an organization's customers, suppliers, business partners and employees. ), developed with Seabury Insurance Capital LLC (Logical Link Control) See "LANs" under data link protocol. LLC - Logical Link Control , an advisory firm that specializes in the insurance and financial services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. industry, provides a dynamic and precise view of an insurance enterprise's financial risk and gives insurers a systematic and scientific approach to managing it. A number of major insurance organizations worldwide are participating in the beta test A test of new or revised hardware or software that is performed by users at their facilities under normal operating conditions. Beta testing follows alpha testing. Vendors of packaged software often offer their customers the opportunity of beta testing new releases or versions, and the of Best's ERM. Following this test period, A.M. Best will begin to phase the model into its rating process. Analytical tools, such as the enterprise risk model and Best's Capital Adequacy Ratio Capital adequacy ratio (CAR), also called Capital to Risk (Weighted) Assets Ratio (CRAR)[], is a ratio of a bank's capital to its risk. National regulators track a bank's CAR to ensure that it can absorb a reasonable amount of loss. (BCAR BCAR Brunswick County Association of Realtors BCAR British Civil Airworthiness Requirements BCAR Bullitt County Animal Rescue (Shepherdsville, KY) BCAR Business Case Analysis Report BCAR Beaver Creek Array BCAR Buffalo Civic Auto Ramps, Inc. ), help analysts to understand how well a company's asset, underwriting and business risks are supported by its level of capital. Best's ERM is based on value-at-risk (VaR) concepts that are widely used among commercial banks, investment banks The following is a list of investment banks Financial conglomerates Large financial-services conglomerates combine commercial banking and investment banking, and sometimes insurance. and asset management companies. Given financial services diversification and convergence, A.M. Best anticipates that the trend towards VaR analysis among insurers will grow, and views the integration of new analytics as essential to maintain the integrity of its insurer financial strength rating methodology. By incorporating VaR concepts, Best's ERM captures and considers standard risks associated with the financial services community at large, including both insurance and non-insurance risks. A.M. Best views the ERM as an important new tool that will complement its existing analytics, including BCAR, which will be maintained. "Best's new enterprise model, together with BCAR, provides a comprehensive and dynamic view of insurers' capital adequacy," Michael Albanese, group vice president of A.M. Best's Global Financial Services, said. "This model," Albanese added, "affords a much-needed, macro-level view of an organization by quantifying the risk to its future surplus arising from changes in underlying variables such as credit or market risk. It also quantifies for an organization the benefits of its diversification." Although the ability to identify diversification benefits offers enormous advantages for an insurer, not all models in use recognize those benefits. Among the models that do, some have a built-in, static assumption about the correlation between an insurer's assets and liabilities. The higher the correlation, the higher the risk. As a result, no matter how well a company diversifies and structures its business, it is not necessarily viewed any more favorably from a risk-based capital standard than a company that pays no attention to diversification and intelligent structuring. "Best's Enterprise Risk Model is a rating as well as risk management tool," explained Tim Freestone free·stone n. 1. A stone, such as limestone, that is soft enough to be cut easily without shattering or splitting. 2. A fruit, especially a peach, that has a stone that does not adhere to the pulp. See Regional Note at andiron. , Seabury's managing partner. "It will provide both A.M. Best and insurance companies with added insight into the risk-adjusted value of earnings. Insurers can use the A.M. Best Enterprise Risk Model to identify with greater accuracy their diversification benefits and to operate with a more efficient level of capital that will enable them to meet the needs of their policyholders and deliver higher returns on capital for shareholders." The new model calculates both the risk of the public and private assets that tend to dominate insurance companies' investment portfolios as well as companies' insurance liabilities. Most importantly Adv. 1. most importantly - above and beyond all other consideration; "above all, you must be independent" above all, most especially , Best's ERM aggregates all of an insurance enterprise's financial risks into a single composite score for much greater transparency of relative risks between insurance companies. To read an excerpt ex·cerpt n. A passage or segment taken from a longer work, such as a literary or musical composition, a document, or a film. tr.v. ex·cerpt·ed, ex·cerpt·ing, ex·cerpts 1. of the report A.M. Best Enterprise Risk Model -- A Holistic Approach holistic approach A term used in alternative health for a philosophical approach to health care, in which the entire Pt is evaluated and treated. See Alternative medicine, Holistic medicine. to Measuring Capital Adequacy, developed with Seabury Insurance Capital, visit www.ambest.com/ratings/specialreports.html. A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com. |
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