• The United States is a CRT-1 CRT-1 country with very low levels of economic, political and financial system risk. The United States experienced its worst financial crisis since the Great Depression from December 2007 to June 2009.
• The U.S. gross domestic product (GDP) contracted by 2.6% in 2009 and the unemployment rate hit double digits. While strong policy action has been taken, both monetary and fiscal, the recovery has been fragile and modest.
Very Low Low
Very High High
• The map below depicts the countries A.M. Best evaluates in North America, Latin America and the Caribbean. Eco Eco-nomic performance in the region over the course of 2008 and 2009 echoes that of the United States, due to decreased tourtourism revenues, slumping financial services sectors, and sharp reduction in overseas remittances. The region grew modestly in 2010 and is experiencing a weak recovery in 2011.
Political Risk Moderate Low
• The Country Risk Tier (CRT) reflects A.M. Best’s assessassessment of three categories of risk: Economic, Political and Financial System Risk.
Very Low Low
Very High High
Financial System Risk Moderate Low
Very Low Low
Very High High
For information on companies followed Market Outlooks
Regional Summary: North America • The North America region is domidominated by the United States of America, which accounts for USD 14 trillion of the total USD 16 trillion in economic activity. • The United States experienced its worst recession in the post WWII era from December 2007 to June 2009. While the recession has officially ended, sluggish growth and stubstubbornly high unemployment continue to have a dampening effect on the region’s economic activity act ivity..
Economic Risk: Ver Very y Low
Vital Vit al Statisti Statistics cs 2010 Nominal GDP Population GDP Per Capita Real GDP Growth Inflation Rate Premiums Written (Life) Premiums Written (Non-Life) Premiums Growth (09-10)
United States France Canada Germany Mexico United Kingdom Source: IMF, Axco, Swiss Re and A.M. Best
• The U.S. economy is the largest and most advanced in the world, with GDP of more than USD 14 trillion. • In 2007-2009 the U.S. economy expeexperienced its worst economic contraccontraction since at least the early 1980s. The economy rebounded modestly by 2.8% in 2010, but stalled in early 2011, partially due to effects from the earthearth quake in Japan and severe weather. Growth has been modest in 2011 and is expected to be slow and uneven moving forward.
5.0 Re al al GD P
CP I I nf nf la titi on on
• In August 2011, the U.S. sovereign credit rating was downgraded for the first time in its history, amid concerns over rising federal debt. Despite the downgrade, investors maintained their favorable view of U.S. credit quality and fled to U.S. bonds. • Uncertain Uncertainties ties remain regarding potential fall-out from the sovereign
Source: IMF World Economic Outlook and A.M. Best
debt crisis thelawmakers eurozone, to as well as the looming ability ofinU.S. rein in the U.S. fiscal deficit.
AMB Country Risk Report
Political Risk Summary
Political Risk: Ver Ver y Low
Score 1 (best) to 5 (worst) United t ed Sta States tes
• The United States has a stable demo demo-cratic political system and a strong legal system.
World Wor ld Ave Averag rage e International Transactions Policy
Source: A.M. Best
• U.S. combat forces are in the process of exiting Iraq, but are still involved in armed combat in Afghanistan, which has strained the relationships between the United States and much of the international community. • The United States has used expansion expansion-ary fiscal policy to stimulate the economy, leading to a substantial increase in the budget deficit and a subsequent downdowngrade in its sovereign credit rating by one ratings agency. agency. Lawmakers are working to rein in the fiscal deficit, but permanent progress has not yet been made. • Interest rates are at historic lows due to expansionary monetary policy, which may resume if the economy shows signs of continued weakness.
350 GDP Per Cap Capita ita
Popula Pop ulatio tion n
Financial System Risk: Ver Ver y Low
30,000 200 s n o i l l i M
D S 25,000 U
10,000 50 5,000
0 United States
Source: IMF and A.M. Best
• Insurance regulation in the United States is decentralized and handled on a state-by-state basis. • As of July 2010, the Federal InsurInsurance Office, under the Department of the Treasury, is responsible for monimoni toring the insurance industry for reguregulatory gaps, systemic risk, and internainterna tional issues.
• The government bailed out and restructured a number of financial institutions during the financial crisis. While the banking sector is recovering, it remains vulnerable to risks, espeespecially exposure to the eurozone, which is facing sovereign debt issues. 3
GUIDE TO BEST’S COUNTRY RISK TIERS A.M. Best defines country country risk as the risk that country-specific country-specific factors could could adversely adversely affect the claims paying paying ability of an insurer. insurer. Country risk is evaluated and factored factored into all Best’s Credit Ratings. Countries are placed into one of five tiers, ranging from “CRT-1” “CRT-1” (Country Risk Tier 1), denoting a stable environment with the least amount of risk, to “CRT-5” (Country Risk Tier 5) for countries that pose the most risk and, therefore, the greatest challenge to an insurer’s financial stability, strength and performance. A.M. Best’s Country Risk Risk Tiers are not credit ratings and are not directly comparable comparable to a sovereign sovereign debt rating, which which evaluates the ability ability and willingness of a government to service its debt obligations.
Country Risk Tiers Country Risk Tier
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 developing 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 Reports are designed designed to provide a brief, high level, explanation of some of the key factors that determine a country’s country’s Country Risk Tier assignment. assignment. It is not intended to summarize A.M. Best’s opinion on any any particular insurance market, or the prospects 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 of Risk
Definition The likelihood that fundamental weaknesses in a country’s economy will cause adverse developments developments for an
insurer. A.M. Best’s assessment of economic evaluates the state ofand the stability. domestic economy, government government finances and international transactions, as wellrisk as prospects for growth The likelihood that government or bureaucratic inefficiencies, societal tensions, inadequate legal system or international tensions will cause cause adverse developments developments for an insurer. Political risk comprises the stability of the governmentt and society, the effectiveness of international diplomatic relationships, the reliability and integrity of governmen the legal system and of the business infrastructure, the efficiency of the government bureaucracy and the appropriateness appropriatenes s and effectiveness of the government’s economic policies. Financial system risk (which includes both insurance and non-insurance financial system risk) i s the risk that financial volatility may erupt due to inadequate reporting standards, weak banking system or asset markets and/or poor regulatory structure. structure. Along with the risk that the insurance industry’s industry’s 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.
Financial System Risk
Political Risk Summary 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 Definition International Transactions Measures the effectiveness of the exchange rate regime and currency management. Policy Monetary Policy Fiscal Policy
Measures the ability of a country to effectively implement monetary policy. 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.
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) (CRT) is not a credit rating, rather it represents represents a component component of A.M. Best’s credit rating methodology methodology that that is applied to all insurers. A CRT is not a recommenda recommendation tion 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 f inancial obligation for a specific purpose or purchaser.