Political and economic risks Assignment

Political and economic risks Assignment Words: 871

Best’s assessment of three categories of risk: Economic, Political and Financial System Risk. Very High Political Risk A. M. Best considers the majority of countries pictured below to be categorized as CRT-I and CRT-2. The exceptions are the Eastern European countries of Bosnia and Herringbone, Belabors, Ukraine, and Poland. Financial System For information on companies followed Market Outlooks Copyright 2011 by A. M. Best Company, Inc. All rights reserved. No part of this report may be reproduced, stored in a retrieval system or transmitted in any form or by any means; electronic, mechanical, hotfooting, recording or otherwise.

M. Best 2 Political Risk Summary Political Risk: Low Score 1 (best) to 5 (worst) World Average France is a member of the European Union and one of the original 11 countries to adopt the Euro as its currency in 1999. International Transactions Policy 5 4 Legal System Monetary Policy 3 Regional Stability Fiscal Policy Social Stability Business Environment Government Stability The French government is attempting to reduce its holdings of large enterprises and limit its intervention in the economy, thereby promoting a more market-based economy.

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A. M. Best’s Country Risk Tiers are not credit ratings and are not directly memorable to a sovereign debt rating, which evaluates the ability and willingness of a government to service its debt obligations. Country Risk Tiers CRT-3 CRT-5 Definition Predictable and transparent legal environment, legal system and business infrastructure; sophisticated financial system regulation with deep capital markets; mature insurance industry framework. Predictable and transparent legal environment, legal system and business infrastructure; sufficient financial system regulation; mature insurance industry framework.

Developing legal environment, legal system and business environment with evolving capital markets; developing insurance regulatory structure. Relatively unpredictable and nontransparent political, legal and business environment with underdeveloped capital markets; partially to fully inadequate regulatory structure. Unpredictable and opaque political, legal and business environment with limited or nonexistent capital markets; low human development and social instability; nascent insurance industry.

Country Risk Reports A. M. Best Country Risk Reports are designed to provide a brief, high level, explanation of some of the key factors that determine a country’s Country Risk Tier assignment. It is not intended to summarize A. M. Best’s opinion on any particular insurance market, or the prospects for that market. Categories of Risk Country Risk Reports provide “scores” for three categories of risk for each country. These “scores” are: (1) Very Low; (2) Low; (3) Moderate; (4) High and (5) Very High.

Category to Risk The likelihood that fundamental weaknesses in a country’s economy will cause adverse developments for an Economic Risk insurer. A. M. Best’s assessment of economic risk evaluates the state of the domestic economy, government finances and international transactions, as well as prospects or growth and stability. The likelihood that government or bureaucratic inefficiencies, societal tensions, inadequate legal system or international tensions will cause adverse developments for an insurer.

Political risk comprises the stability of the Political Risk government and society, the effectiveness of international diplomatic relationships, the reliability and integrity of the legal system and of the business infrastructure, the efficiency of the government bureaucracy and the appropriateness and effectiveness of the government’s economic policies. Financial system risk (which includes both insurance and non-insurance financial system risk) is the risk that financial volatility may erupt due to inadequate reporting standards, weak banking system or asset markets Financial System Risk and/or poor regulatory structure.

Along with the risk that the insurance industry level of development and public awareness, transparent and effective regulation and reporting standards and sophisticated regulatory body will contribute to a volatile financial system and compromise the ability of an insurer to pay claims. To provide additional detail on the political risk in a given domicile the Country Risk Reports include the Political Risk Summary. The Political Risk Summary is a radar chart that displays scores for nine different aspects of political risk scored on a scale of 1-5 with 1 being the least amount of risk and 5 being the highest amount of risk.

Category International Transactions Measures the effectiveness of the exchange rate regime and currency management. Policy Measures the ability of a country to effectively implement monetary policy. Fiscal Measures the ability of a country to effectively implement fiscal policy. Measures the overall quality of the business environment, and ease of doing business. Measures the flexibility of the labor market, including the company’s ability to hire and fire employees. Measures the degree of stability in a government. Social S Measures the degree of social stability including human development and political rights.

Measures the degree of stability in the region Measures the transparency and level of corruption in the legal system. Country Risk Tier Disclosure A Country Risk Tier (CRT) is not a credit rating, rather it represents a component of A. M. Best’s credit rating methodology that is applied to all insurers. A CRT is not a commendation to purchase, hold or terminate any security, insurance policy, contract or any other financial obligation issued by a government, an insurer or other rated issuer, nor do they address the suitability of any particular policy, contract or other financial obligation for a specific purpose or purchaser.

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