Country Risk Global Report

AMB
Country Risk Report:

Global Summary
September 2009
AMB Country Risk Report: Global Summary Table of Contents
Rating Analysts Introduction 1
Edward Easop, Vice President

+1 (908) 439-2200 Ext. 5781
Tier Characteristics 2
Edward.Easop@ambest.com
Economic Risk 2
Andrea Keenan, Managing Senior Financial Political Risk 4
Analyst, Country Risk Group
Financial System Risk 6
+1 (908) 439-2200 Ext. 5084
Andrea.Keenan@ambest.com
James Gillard, Senior Financial Analyst, Regional Analysis 8

Country Risk Group
+1 (908) 439-2200 Ext. 5818
Asia-Pacific 9
James.Gillard@ambest.com
Central Asia and Eastern Europe 13
Latin America and Caribbean 16
Middle East and Northern Africa 19
North America 22
Sub-Saharan Africa 25
Western Europe 28
Conclusion 31
AMB Country Risk Report: Global Summary
CRT-1
A.M. Best defines country risk as the risk that country-specific
Australia Isle of Man*
factors could adversely affect the claims paying ability of an
Austria Luxembourg
insurer. Country risk is factored into all A.M. Best ratings. A.M.
Canada Netherlands
Best’s country risk methodology, Assessing Country Risk,
Denmark Norway
presents the country risk evaluation process and describes how
Finland Singapore
country risk is integrated into Best’s Credit ratings.
France Sweden
Germany Switzerland
On April 8, 2009, the new country risk methodology and Country
Gibraltar* United Kingdom
Risk Tiers (CRTs) were released. On that date, implementation
Guernsey* United States
of the new methodology commenced. Both are available at
www.ambest.com.
CRT-2
On August 31, 2009 a new release of the Country Risk Tiers was Barbados* Japan
published, marking the start of an annual cycle that will culmi- Belgium Liechtenstein*
nate with a revised list of CRTs and updated AMB Country Risk Bermuda Macau
Reports being released at the end of August each year. British Virgin New Zealand
Islands* Slovenia
The 75 countries evaluated by A.M. Best are listed according to Cayman Islands* South Korea
their Country Risk Tier in the table to the right. Two countries Hong Kong Spain
changed Tiers since the last release in April. Antigua & Barbuda Italy Taiwan
moved from a CRT-3 to a CRT-4 and Bosnia and Herzegovina Ireland
moved from a CRT-4 to a CRT-5.
The purpose of this report is to supplement the methodology, CRT-3

summarize the output of the A.M. Best Country Risk Model, and Bahamas* Poland
identify the characteristics exhibited by each of the peer groups. Bahrain Qatar
It therefore also serves as a compilation of the information that China Saudi Arabia
can be found in the individual AMB Country Risk Reports that Cyprus South Africa
are available on the A.M. Best website. Israel Thailand
Kuwait Trinidad and
The report is broken down into two main parts. The first section Malaysia Tobago
discusses economic, political, financial and insurance statistics Mexico United Arab
of countries in a given tier. The second looks at the countries in a Netherlands Emirates
regional context. Antilles*
Oman
This report does not provide analysis beyond the results of the
country risk evaluation process. More detailed studies on specific
insurance industries or markets are available as Special Reports at CRT-4
www.ambest.com.
Antigua & Kazakhstan
Barbuda* Mauritius
Brunei Darussalam Morocco
Egypt Panama
India Philippines
Indonesia Russia
Jamaica Tunisia
Jordan Turkey
CRT-5
Belarus Kenya
Bosnia and Lebanon
* Denotes Countries to be considered “Special Cases” by A.M. Best. For an explanation Herzegovina Nigeria
of a “special case” and more information on the Country Risk Methodology please see Dominican Republic Ukraine
Assessing Country Risk at: http://www.ambest.com/ratings/countryrisk.pdf.
Ghana Vietnam
Copyright © 2009 by A.M. Best Company, Inc.

1 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, photocopying, recording or otherwise.
Tier Characteristics
This section of the report examines the general characteristics typical to a country in a
given tier. It is organized to match the 3 broad categories of risk outlined in the country
risk methodology. These categories of risk are (1) Economic Risk; (2) Political Risk and
(3) Financial System (both non-insurance and insurance) Risk.
As there are only five categories of country risk, significant differences can be seen,
on average, from one tier to the next. On average, insurers domiciled or operating in
countries classified as CRT-3, CRT-4 or CRT-5, tend to be impacted more by country
risk than those insurers domiciled or operating in CRT-1 or CRT-2 countries. However,
differentiation between countries in CRT-1 and CRT-2 is necessary as an important line
exists between those countries that are relatively low risk compared to those that are
stable and well diversified but have some significant weaknesses.
Economic Risk
Economic risk is the likelihood that fundamental weaknesses in a country’s economy
will cause adverse developments for an 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 for growth and stability.
In deriving economic risk, A.M. Best’s country risk model employs a weighted average
of scores calculated from economic variables. The final result categorizes countries’
economic risk into one of five levels of risk, ranging from Very Low to Very High. Below is a
summary of the results. Note: April’s model results are included in parenthesis if different
from current results.
As the above table illustrates, economic risk typically is very low in CRT-1 countries and
high in CRT-5 countries. Comparing the current results with those published in April
we can see that in general the level of economic risk has risen. To illustrate the results,
Figures 1 and 2 below are average values in each tier of two of the most significant
indicators of economic risk; overall wealth and economic size.

Wealth Figure 1
GDP Per Capita
One of the most telling indicators in A.M. $70,000
Best’s assessment of economic risk is
gross domestic product (GDP) per capita. $57,209
$60,000
Figure 1 shows the average GDP per capita
in countries in CRT-1 through CRT-5. The
numbers are a simple arithmetic average $50,000
and have not been GDP-weighted. In

addition, special cases have been removed $40,000
$35,932
as economic risk is captured differently
USD
for these countries and their inclusion in $30,000
the average would distort the results in an $25,651
uninformative way.
$20,000
$7,442
$10,000
$3,509
$0
C R T -1 C R T -2 C R T -3 C R T -4 C R T -5
Source: IMF World Economic Outlook
Size Figure 2
Gross Domestic Product (Billions, USD)
Figure 2 shows the average size of an
$2,500
economy (as measured by nominal GDP
in US dollars) by Country Risk Tier. Again
these are simple averages and special $1,971
cases have been removed. $2,000
Countries in higher tiers [CRT-1 being the

highest] are generally (on average) larger $1,500
B illio n s, U S D
and more wealthy than countries in lower

tiers [CRT-5 being the lowest]. And while $1,036
many other indicators are used in the $1,000
assessment of economic risk, these two,

particularly GDP per capita, are highly
$541
illustrative of the level of economic risk. $500
$343
$76
$0

Political Risk
Political risk is 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 a
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.
As was the case with economic risk, each country’s political risk is scored from
Very Low to Very High. The following table shows the distribution of these scores
across tiers. Note: April’s model results are included in parenthesis if different from
current results.
Political Risk Summary
The Political Risk Summary is a radar chart that summarizes portions of the model output
on Political Risk and is included on each AMB Country Risk Report published. It provides
the scores for some of the major categories of political risk. The chart displays a score of
1-5 for 9 different aspects of political risk with 1 being the lowest level of risk and 5 being
the highest. The points on the chart are defined as follows.
• International Transactions Policy – measures the effectiveness of the exchange rate

regime and currency management.
• Monetary Policy – measures the ability of a country to effectively implement
monetary policy.
• Fiscal Policy – measures the ability of a country to effectively implement fiscal
policy.
• Business Environment – measures the overall quality of the business environment,
and ease of doing business.
• Labor Flexibility – measures the flexibility of the labor market, including a
company’s ability to hire and fire employees.
• Government Stability – measures the degree of stability in the government.
• Social Stability – measures the degree of social stability including human
development and political rights.
• Regional Stability – measures the degree of stability in the region.
• Legal System – measures the transparency and level of corruption in a legal system.

Figure 3
Political Risk Summary across Country Risk Tiers

Score 1 (best) to 5 (worst)
C R T -1 C R T -2
International T ransactions P olicy
C R T -3 C R T -4
5
C R T -5
Legal S ystem 4 M onetary P olicy
R egional S tability 1 F iscal P olicy
S ocial S tability B usiness E nvironm ent
G overnm ent S tability Labor F lexibility
Source: A.M. Best

Financial System Risk

Financial system risk (non-insurance) is the risk that financial volatility may erupt due to
inadequate reporting standards, weak banking systems or asset markets or poor regulatory
structure. Non-insurance financial system risk considers a country’s banking system,
accounting standards and government finances, and it assesses how vulnerable the financial
system is to external or internal volatility. Basel II, World Bank Insolvency Principles and
International Accounting Standards all are referenced in the analysis, as are the performances
of banks, equity indices and fixed-income securities. Insurance risk is the risk that the insurance
industry’s levels of development and public awareness; transparency and effectiveness of
regulation; reporting standards; and regulatory sophistication will contribute to a volatile
financial system and compromise an insurer’s ability to pay claims. The assessment is based
heavily on the Insurance Core Principles (ICP) of the International Association of Insurance
Supervisors (IAIS). A.M. Best employs a sizable subset of the 28 ICPs by organizing them
into three categories: 1) government commitment to an open and well-regulated insurance
industry, 2) adequacy of supervisory authority and its supporting infrastructure, and 3) insurer
accountability.
As was the case with economic and political risk, each country’s financial system risk is scored
from Very Low to Very High. The following table shows the distribution of these scores across
tiers. Note: April’s model results are included in parenthesis if different from current results.
Financial system risk is lower in CRT-1, CRT-2 and CRT-3 than it is in CRT-4 and CRT-5. In
addition there is a pronounced shift in the scores, particularly in the CRT-5 countries.
Scores have risen and it is clear that the global financial turmoil of the past year has
increased the amount of financial system risk in many of the countries being evaluated.
Financial system risk is a combination of non-insurance financial system risk and insurance
risk. Factors involved in the assessment of this risk are diverse and include financial
market performance, regulatory compliance, banking system soundness and adherence to
insurance core principles. As such, there is not one indicator that can simply be averaged
across tiers to illustrate financial system risk.

To illustrate the relationship identified Figure 4

between development of a financial Total Premiums/Gross Domestic Product
system infrastructure and maturity of 10%
an insurance industry, it is interesting 9.2%

8.7%
to illustrate a comparison of the ratio of 9%
total premiums written to gross domestic 8%

product across tiers (and then regions).
This number is not a direct input to the 7%
Country Risk Model. This number was 6%

calculated by averaging total premiums
across the tier and dividing by the average 5%
GDP in the tier.

4%
3.4%
There is a very large drop off in this ratio 3%

2.5%
from CRT-2 to CRT-3, illustrating that the
2%
typical CRT-1 and CRT-2 country has a 1.6%
developed and mature insurance industry 1%
while the other tiers represent more

emerging markets. 0%
Source: IMF World Economic Outlook, Swiss Re and A.M. Best

Regional Analysis
The second part of this report looks at the same data and information but rather than
aggregate it by Country Risk Tier, it will be aggregated by region. For the following analysis
each country is placed into one of seven regions as follows.
Asia-Pacific Central Asia and Eastern Europe

Australia Malaysia Belarus Poland
Brunei Darussalam New Zealand Bosnia and Russia
China Philippines Herzegovina Slovenia
Hong Kong Singapore Kazakhstan Ukraine
India South Korea
Indonesia Taiwan
Japan Thailand
Macau Vietnam
Latin America and Caribbean Middle East and Northern Africa

Antigua and Barbuda* Jamaica Bahrain Morocco
Bahamas* Mexico Cyprus Oman
Barbados* Netherlands Antilles* Egypt Qatar
British Virgin Islands* Panama Israel Saudi Arabia
Cayman Islands* Trinidad and Tobago Jordan Tunisia
Dominican Republic Kuwait Turkey
Lebanon United Arab Emirates
North America Sub-Saharan Africa

Bermuda* United States Ghana Nigeria
Canada Kenya South Africa
Mauritius
Western Europe
Austria Italy
Belgium Liechtenstein*
Denmark Luxembourg
Finland Netherlands
France Norway
Germany Spain
Gibraltar* Sweden
Guernsey* Switzerland
Ireland United Kingdom
Isle of Man*
* Denotes Countries to be considered “Special Cases” by A.M. Best. For an explanation of a “special case” and
more information on the Country Risk Methodology please see Assessing Country Risk at: http://www.ambest.
com/ratings/countryrisk.pdf.

AMB Country Risk Report:*Global
DenotesSummary
Countries to be considered “Special Cases” by A.M. Best. For an explanation of a “special case”
and more information on the Country Risk Methodology please see Assessing Country Risk at:
http://www.ambest.com/ratings/countryrisk.pdf.
Thefollowing
The followingchart
chartdescribes
describesthe
the distribution
distribution of
of Country
Country Risk
Risk Tier
Tier assignments
assignmentsacross
across
each region. Note: numbers in parenthesis are April’s results if different from current
each region. Note: numbers in parenthesis are April’s results if different from current
results.
results.
Country Risk Tier by Region

Region CRT-1 CRT-2 CRT-3 CRT-4 CRT-5 Total
Asia-Pacific 2 6 3 4 1 16
Central Asia and
0 1 1 2 (3) 3 (2) 7
Eastern Europe
Latin America
0 3 4 (5) 3 (2) 1 11
and Caribbean
Middle East and
0 0 8 5 1 14
Northern Africa
North America 2 1 0 0 0 3
Sub-Saharan
0 0 1 1 3 5
Africa
Western Europe 14 5 0 0 0 19
Total 18 16 17(18)
18 15 9(8)
8 75
The majority of the CRT-1 countries are located in North America and Western Europe.
The
Theother tiersofare
majority themore evenly
CRT-1 distributed
countries across
are located in the regions. Two
North America and countries
Westernchanged
Europe.
Country Risk
The other Tiers
tiers are during this cycle. Bosnia
more evenly and Herzegovina,
distributed across in Eastern
the regions. Two Europe,
countries moved
changed
from a CRT-4
Country RisktoTiers
CRT-5 and Antigua
during andBosnia
this cycle. Barbuda,
andinHerzegovina,
the Caribbean, moved from
in Eastern a CRT-3 to
Europe,
a moved
CRT-4. from a CRT-4 to CRT-5 and Antigua and Barbuda, in the Caribbean, moved from
a CRT-3 to a CRT-4.
The remainder of this section will walk through each region. Each regional section
will start with a brief regional comment [originally published in the AMB Country Risk
The remainder of this section will walk through each region. Each regional section will
Reports] and then discuss the performance of the region in the three categories of risk
start with a brief regional comment [originally published in the AMB Country Risk
that have previously been identified.
Reports] and then discuss the performance of the region in the three categories of risk
that have previously been identified.
Asia-Pacific
Asia-Pacific
Asia-Pacific
Asia-Pacific canbebebroken
can brokendown
downinto
intofour
foursub-regions.
sub-regions.
EasternAsia
Eastern Asia
•Eastern Asia is home to some of the world’s largest and most advanced
economies.
• Eastern Chinatoand
Asia is home Japan
some are world’s
of the both in the world’s
largest and top five
most countrieseconomies.
advanced measured
by gross domestic product (GDP).
China and Japan are both in the world’s top five countries measured by gross domestic
• In the
product aftermath of the Southeast Asian financial crisis in the late 1990s, much of
(GDP).
the region underwent a restructuring of traditional economic and financial
practices
• In the to match
aftermath of theinternational best financial
Southeast Asian practices crisis
in regulation.
in the late 1990s, much of the
region underwent a restructuring of traditional economic and financial practices to
match international best practices in regulation.
8
• The region as a whole is facing the prospect of economic contraction in 2009 but
growth is expected to return in 2010.

Oceania
• The region as a whole is facing the prospect of economic contraction in 2009 but
• Oceania,
growthwhose largest to
is expected two nations,
return Australia and New Zealand, make up the vast
in 2010.
majority of economic activity, is located in the South Pacific Ocean. Australia and New
Zealand have strong political and cultural ties with the United Kingdom.
Oceania
• Oceania, whose largest two nations, Australia and New Zealand, make up the vast
• Australia and New Zealand have close economic ties with Southeast Asia and in 2009
majority of economic activity, is located in the South Pacific Ocean. Australia and
ASEAN-Australia and New Zealand Free Trade Area (AANZFTA) was established.
New Zealand have strong political and cultural ties with the United Kingdom.
• Australia
• The and Newslowdown
global economic Zealand have close economic
is impacting tiesas
the region with
theSoutheast
economiesAsia and in
of both
2009 ASEAN-Australia and New Zealand Free Trade
Australia and New Zealand are set to contract in 2009. Area (AANZFTA) was
established.
• The global
South Central Asia economic slowdown is impacting the region as the economies of both
Australia and New Zealand are set to contract in 2009.
• The region of South Central Asia, comprising the countries south of the Himalayans,
South Central Asia
is dominated in population and economic size by India.
• The region of South Central Asia, comprising the countries south of the
• Strategic in location
Himalayans, as it is bordered
is dominated by China,
in population and Central
economicAsia and
size bythe Middle East, this
India.
region containsina location
• Strategic cross section
as it isofbordered
culturesby
and histories
China, andAsia
Central is prone to periods
and the Middle of
East,
regional instability, particularly between Pakistan and India.
this region contains a cross section of cultures and histories and is prone to
periods of regional instability, particularly between Pakistan and India.
• Much of South Central Asia had been colonized by the United Kingdom prior to
• Much of South Central Asia had been colonized by the United Kingdom prior to
World War II. A strong relationship between the subcontinent and the UK remains.
World War II. A strong relationship between the subcontinent and the UK
Southeastremains.
Asia
Southeast AsiaAsia is a critical part of the world trading system and while the region’s
• Southeast
• Southeast
economies remain Asia is a critical
somewhat part of the
dependent onworld tradingmanufacturing
agriculture, system and while andthe region’s
services
economies remain somewhat
have been the engine for growth. dependent on agriculture, manufacturing and
services have been the engine for growth.
• 2009-2010
• 2009-2010 are forecasted
are forecasted to betovery
be very difficult
difficult timestimes for region. In
for the the region.factIn fact
forecasts
forecasts
suggest suggestbethese
these should shouldyears
the worst be thesince
worstthe
years since
Asian the Asian
financial financial
crisis crisis
in 1997-1998.
With the economies of
in 1997-1998. their
With thelarge tradingof
economies partners slowing
their large significantly
trading (notably U.S.
partners slowing
and Europe) demand
significantly for exports
(notably is plummeting
U.S. and Europe) demandand leading to economic
for exports contraction
is plummeting and
acrossleading
the region. At the same time as global credit tightens, the amount
to economic contraction across the region. At the same time as global of foreign
directcredit
investment flowing
tightens, into the
the amount ofeconomies is drying
foreign direct up. flowing into the
investment
economies is drying up.
Asia-Pacific
Risk Category Very Low Low Moderate High Very High
Economic 1 (3) 7 (6) 6 (5) 2 0
Political 2 (4) 6 (4) 3 (2) 5 (6) 0
Financial System 4 (5) 5 (4) 3 2 (3) 2 (1)
Economic Risk
Since the last release of Country Risk Tiers, in April, the level of economic risk in the
region has risen. In April three countries displayed very low levels of economic risk,
now there is only one (Australia).
9 Copyright © 2009 by A.M. Best Company, Inc.

Economic Risk Figure 5

GDP Per Capita
Since the last release of Country Risk Tiers, $70,000
in April, the level of economic risk in the

region has risen. In April three countries
$60,000
displayed very low levels of economic risk,
now there is only one (Australia).
$50,000
Figure 5 shows the level of per capita GDP

in the Asia-Pacific region as it compares $40,000
to the averages for each tier average. In
USD
terms of GDP per capita the region, as a $30,000
whole, is similar to the CRT-3 average. This

is not surprising given the distribution $20,000
of tiers in the region. The wealthiest (in
terms of GDP per capita) countries in the
$10,000
region are Australia, Macau and Singapore
while the poorest are Vietnam and India.
$0
C R T -1 C R T -2 C R T -3 A sia-P acific C R T -4 C R T -5
Figure 6 shows gross domestic product

for the same set of countries. In terms of
economic size the region on average is Figure 6
larger than the average CRT-3 country but Gross Domestic Product (Billions, USD)
smaller than the average CRT-2 country.
$2,500
The region boasts two of the three largest
(in terms of nominal GDP) economies in the
world with Japan and China. Macau and
$2,000
Brunei Darussalam are very small countries
and the two smallest in the region.
$1,500
B illio n s, U S D
$1,000
$500
$0
C R T -1 C R T -2 A sia-P acific C R T -3 C R T -4 C R T -5

Political Risk Figure 7

Political Risk Summary – Asia-Pacific
Figure 7 compares the components of
political risk in Asia-Pacific to the averages Score 1 (best) to 5 (worst)
for each Country Risk Tier.
C R T -5 C R T -4
Again not surprisingly, given the C R T -3 C R T -2

International T ransactions P olicy C R T -1 A sia-P acific
distribution of scores, on average countries 5
in the Asia-Pacific score worse than the
4
average CRT-2 country but better than the Legal S ystem M onetary P olicy
average CRT-3 country. Australia and New 3

Zealand score the best in the region in
2
terms of political risk.
Source: A.M. Best
Financial System Risk Figure 8

Total Premiums/Gross Domestic Product
The final category of risk to be examined 10%
is financial system risk. In Asia-Pacific,

relative to other types of risk, financial 9%
system risk is the most widely distributed 8%

category with scores ranging from very
high to very low. 7%
6%
Countries in the region with the most
premiums written as a percent of GDP 5%
include Hong Kong, South Korea and

4%
Taiwan while Vietnam, Indonesia and The
Philippines are among the lowest. 3%
2%
1%
0%
C R T -1 C R T -2 A sia-P acific C R T -3 C R T -4 C R T -5

Figure 8: Total Premiums/Gross Domestic Product
Central
CountriesAsia
in theand Eastern
region Europe
with the most premiums written as a percent of GDP include
Hong
This Kong,
region is South Korea
made up andsub-regions,
of two Taiwan while Vietnam,
Central AsiaIndonesia andEurope.
and Eastern The Philippines are
among the lowest.
Central Asia
Central Asia and Eastern Europe
• The Central Asian countries surrounding the Caspian Sea, with the exception of Iran,
are all at various stages of transition since the collapse of the Union of Soviet and
This region is made up of two sub-regions, Central Asia and Eastern Europe.
Socialist Republics (U.S.S.R.). All Central Asian countries evaluated by A.M. Best have
high risk scores for political risk.
Central Asia
• transition
• The The Central Asian had
process countries
been surrounding the Caspian
further complicated Sea,presence
by the with theofexception
major of
Iran,and
petroleum are natural
all at various stages of transition
gas resources, since
the politics the collapse
surrounding theof the Union
export of
of those
Soviet and Socialist Republics (U.S.S.R.). All
resources, and continuing historical and ethnic tensions. Central Asian countries evaluated
by A.M. Best have high risk scores for political risk.
• The transition
• Oil exporters process
and those had
that been further
financed complicated
domestic by the
lending with presence
foreign of major
capital are under
petroleum and natural gas resources, the politics surrounding the export
significant financial strain in this region, and global forecasts have been downgraded of thoseto
suggestresources,
economicand continuingacross
contraction historical and ethnic tensions.
the region.
• Oil exporters and those that financed domestic lending with foreign capital are
Eastern Europe
under significant financial strain in this region, and global forecasts have been
downgraded to suggest economic contraction across the region.
• Eastern European countries are all at various stages of transition since the collapse of
the Union
Eastern of Soviet and Socialist Republics (U.S.S.R.). For most, the transition process
Europe
involved the adoption of entirely new regulatory, legal and economic philosophies while
• Eastern European countries are all at various stages of transition since the collapse
combating cultural and / or historical tensions.
of the Union of Soviet and Socialist Republics (U.S.S.R.). For most, the
transitionasprocess
• All classified involved
“emerging the countries,
market” adoption ofsome
entirely
havenew regulatory,
managed legal and
to achieve a great
deal ofeconomic
economicphilosophies
stability andwhile combating
political cultural and those
power, particularly / or historical
that havetensions.
secured
• All classified
membership as “emerging
in the European market”
Union countries,
(EU) and somethe
some, even have managed to achieve a
euro-zone.
great deal of economic stability and political power, particularly those that have
secured
• Eastern Europemembership in thedeal
shows a great European Unionand
of potential (EU) and some,
in recent even
years hasthe euro-zone.
been a favorite
• Eastern Europe shows a great deal of potential
region for foreign investors from developed nations. and in recent years has been a
favorite region for foreign investors from developed nations.
Central Asia and Eastern Europe

Economic 0 1 3 (4) 3 (2) 0
Political 0 1 1 5 0
Financial System 0 2 0 3 2
11


GDP Per Capita
Figure 9 illustrates the average wealth $70,000
of countries in this region. On average

countries in this region are just slightly $60,000
wealthier than the average CRT-4 country.
Slovenia has a significantly higher GDP per
$50,000
capita than the rest of its regional peers,
while Ukraine and Bosnia and Herzegovina
have the lowest in the region. $40,000
USD
$30,000
$20,000
$10,000
$0
C R T -1 C R T -2 C R T -3 C entral A sia and C R T -4 C R T -5
E astern E urope
Figure 10 illustrates the average wealth Figure 10

of countries in this region. Again on Gross Domestic Product (Billions, USD)
average countries in this region are of $2,500
similar economic size to the average CRT-
4 country. The average is clearly brought
up by the inclusion of Russia which is $2,000
three times as large as the second biggest
country in the region.
$1,500
B illio n s, U S D
$1,000
$500
$0
E astern E urope


Political Risk Summary – Central Asia and Eastern
Figure 11 shows political risk in the region. Europe
Countries in the region score between
CRT-3 and CRT-4 on average with particular Score 1 (best) to 5 (worst)
weakness in fiscal policy efficiency.
Slovenia scores better than the rest of the C R T -5
region in terms of political risk. C R T -4
C R T -3
International T ransactions P olicy C R T -2
5 C R T -1
C entral A sia and E astern E urope
Source: A.M. Best

Figure 12
Figure 12 illustrates total premiums as 10%
a percent of GDP. Belarus, Bosnia and

9%
Herzegovina and Kazakhstan have the
lowest ratio in the region while Slovenia 8%
and Poland have the highest.

7%
6%
5%
4%
3%
2%
1%
0%
E astern E urope

Latin America and Caribbean

This region combines Latin America and the Caribbean sub-regions.
Latin America
• The entire region is feeling the weight of the global economic decline as reliance
This region combines
on exports Latincountries
to developed America –and the Caribbean
particularly sub-regions.
the United States – and reliance on
commodity industries and tourism will result in growth decelerations if not economic
contractions
Latin America in 2009. Weathering the storm will depend greatly on sound government
policies
• The and institutions.
entire region is feeling the weight of the global economic decline as reliance
on exports to developed countries – particularly the United States – and reliance
• Forecasts for growth
on commodity in all of Latin
industries America
and tourism areresult
will beinginrevised
growthdownward – inifmany
decelerations not
cases predicting a sharp region-wide contraction.
economic contractions in 2009. Weathering the storm will depend greatly on
sound government policies and institutions.
• The Latin American insurance industry is dominated by Mexico and Brazil, who
• Forecasts
represent 63% offor growth in
premiums all of Latin
written in theAmerica
region. are being revised downward – in
many cases predicting a sharp region-wide contraction.
• The Latin American insurance industry is dominated by Mexico and Brazil, who
represent 63% of premiums written in the region.
Caribbean
Caribbean
• countries
• The The countries of Caribbean
of the the Caribbean
varyvary in cultural
in cultural origin,
origin, economic
economic foundation
foundation andand
population
population affluence. However,
affluence. However, in all cases,
in all cases, their long-term
their long-term growthgrowth and stability
and stability is
highly is highly dependent
dependent upon
upon their theirregional
larger larger regional neighbors.
neighbors.
• As much of the Caribbean relies upon tourism revenues from nationals of
• As much of the countries,
developed Caribbeanparticularly
relies uponthe tourism
Unitedrevenues from nationals
States, economic growthofisdeveloped
suffering
countries, particularly the United States, economic growth is suffering in 2009.
in 2009.
• The Caribbean financial services sectors will be affected by the current global
• The Caribbean financial services sectors will be affected by the current global
financial crisis. The exact impact is yet to be determined as the trend of
financial crisis. The exact impact is yet to be determined as the trend of nationalizations
nationalizations and consolidations in finance companies and the collapsing of
and consolidations in finance companies and the collapsing of hedge funds continues.
hedge funds continues.

Economic 0 4 4 (5) 2 (1) 1
Political 0 4 (6) 6 (4) 1 0
Financial System 0 5 (6) 3 (2) 2 1
Economic Risk
Note that for the first time in the figures on GDP Per Capita and GDP the special cases in
the Caribbean are included. This is because they make up a very large part of the region
and are representative of the region. Figure 13 illustrates the average wealth of countries
in this region. The wealthiest countries in the region include the Cayman Islands and the
British Virgin Islands, while the least wealthy are the Dominican Republic and Jamaica.
Figure 13: GDP Per Capita
Figure 14: Gross Domestic Product (Billions, USD)

13

GDP Per Capita
Note that for the first time in the figures $70,000
on GDP Per Capita and GDP the special

cases in the Caribbean are included. This $60,000
is because they make up a very large part
of the region and are representative of the
$50,000
region. Figure 13 illustrates the average
wealth of countries in this region. The
wealthiest countries in the region include $40,000
the Cayman Islands and the British Virgin
USD
Islands, while the least wealthy are the $30,000
Dominican Republic and Jamaica.

$20,000
$10,000
$0
C R T -1 C R T -2 C R T -3 Latin A m erica and C R T -4 C R T -5
C aribbean
Figure 14 shows the average economic Figure 14

size of a country in Latin America and Gross Domestic Product (Billions, USD)
the Caribbean. The average is small
$2,500
and similar to a CRT-5 country, but this
actually understates how small most of
the countries in the region are. Many of
$2,000
the islands of the Caribbean are among
the smallest countries assigned Country
Risk Tiers and the regional average is
$1,500
drastically increased by the inclusion
B illio n s, U S D
of Mexico. Nevertheless, these small

economies are largely island countries with
$1,000
small populations, helping to maintain a
relatively high GDP per capita.
$500
$0
C R T -1 C R T -2 C R T -3 C R T -4 Latin A m erica and C R T -5
C aribbean


Political Risk Summary – Latin America and Caribbean
Figure 15 shows that political risk scores
in the region are, on average, between CRT- Score 1 (best) to 5 (worst)
2 and CRT-3. Barbados, the British Virgin
Islands, Cayman Islands and the Bahamas
display the lowest levels of political risk,
C R T -1
while the Dominican Republic has the C R T -2
C R T -3
highest level. International T ransactions P olicy
5
C R T -4
C R T -5
Latin A m erica and C aribbean
Source: A.M. Best
Figure 16
Financial System Risk Total Premiums/Gross Domestic Product
10%
Figure 16 illustrates total premiums as a
percent of GDP. The average for the region 9%
is between the average for CRT-4 and CRT- 8%

5. The highest percentage in the region
includes the Bahamas while the Dominican 7%
Republic and Mexico are among the lowest. 6%
5%
4%
3%
2%
1%
0%
C R T -1 C R T -2 C R T -3 C R T -4 Latin A m erica and C R T -5
C aribbean

Middle
Middle East East and Northern
and Northern Africa Africa
• The Middle East & North Africa region includes several wealthy oil producing
• The Middle East & North Africa region includes several wealthy oil producing nations
nations
and and is characterized
is characterized by regionalby regionaland
instability instability and
periods of periodsviolence.
regional of regional
violence.
• • After
Aftermore
morethan thanfive
five years
years of of rapid
rapid expansion,
expansion, driven
driven primarily
primarily by a by
booma boom
in oil in oil
prices,
theprices, theforoutlook
outlook for the
the Middle EastMiddle
& NorthEast & North
Africa regionAfrica regionmore
has become has pessimistic.
become more
pessimistic.
• • With
Withthe
theWorld
World Bank
Bankforecasting
forecastingoil prices to remain
oil prices below
to remain their their
below peak peak
levelslevels
for thefor
foreseeable future, the region will continue to face economic challenges.
the foreseeable future, the region will continue to face economic challenges.
• • In
Inaddition
additiontotofalling
falling
oiloil prices,
prices, thethe global
global economic
economic slowdown
slowdown has impacted
has impacted the the
region through reduced tourism and tightening credit
region through reduced tourism and tightening credit conditions. conditions.
Middle East and Northern Africa

Economic 0 3 (4) 6 (5) 5 0
Political 0 0 (1) 9 (8) 5 0
Financial System 0 5 (7) 3 (1) 5 1
Economic Risk
Figure 17 illustrates the average wealth of countries in the region. The levels of wealth in
the region vary widely from those in the rich oil producing states of the Gulf Cooperation
Council (GCC) to the less wealthy countries of Northern Africa. The average GDP per
capita for the GCC - Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab
Emirates - is approximately USD 35,000, between the average for CRT-1 and CRT-2.
Figure 18 shows the average economic size of countries in the Northern Africa and
Middle East region. The countries in this region are small, similar to the average for
CRT-5. Turkey is the largest country (in terms of gross domestic product) in the region
followed by Saudi Arabia. The smallest include Bahrain, Cyprus, Jordan and Lebanon.
19 15 Copyright © 2009 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, photocopying, recording or otherwise.

GDP Per Capita
of countries in the region. The levels of

wealth in the region vary widely from $60,000
those in the rich oil producing states of
the Gulf Cooperation Council (GCC) to
$50,000
the less wealthy countries of Northern
Africa. The average GDP per capita for the
GCC - Bahrain, Kuwait, Oman, Qatar, Saudi $40,000
Arabia and the United Arab Emirates - is
USD
approximately USD 35,000, between the $30,000
average for CRT-1 and CRT-2.

$20,000
$10,000
$0
C R T -1 C R T -2 C R T -3 M iddle E ast and C R T -4 C R T -5
N orthern A frica

size of countries in the Northern Africa Gross Domestic Product (Billions, USD)
and Middle East region. The countries in
$2,500
this region are small, similar to the average
for CRT-5. Turkey is the largest country
(in terms of gross domestic product) in
$2,000
the region followed by Saudi Arabia. The
smallest include Bahrain, Cyprus, Jordan
and Lebanon.
$1,500
B illio n s, U S D
$1,000
$500
$0
C R T -1 C R T -2 C R T -3 C R T -4 M iddle E ast and C R T -5
N orthern A frica


Political Risk Summary – Middle East and Northern
Political risk is relatively high for the Africa
Middle East and Northern Africa region
with all countries having at least a Score 1 (best) to 5 (worst)
moderate amount of political risk. Regional
stability is the largest challenge. Egypt,
Jordan, Morocco, Turkey and Lebanon all
C R T -1
have high levels of political risk. C R T -2
C R T -3
5 C R T -5
M iddle E ast and N orthern A frica
Source: A.M. Best
Figure 20
Financial System Risk Total Premiums/Gross Domestic Product
10%
Figure 20 illustrates total premiums
as a percent of GDP. The average total 9%
premiums as a percent of GDP are low in 8%

the region, similar to the average for CRT-
5. Israel and Cyprus have the highest level 7%
while Kuwait, Saudi Arabia and Egypt are 6%

the lowest.
5%
4%
3%
2%
1%
0%
C R T -1 C R T -2 C R T -3 C R T -4 M iddle E ast and C R T -5
N orthern A frica

Figure 20 illustrates total premiums as a percent of GDP. The average total premiums as
AMB Country Risk Report:aGlobal
percent of GDP are low in the region, similar to the average for CRT-5. Israel and
Summary
Cyprus have the highest level while Kuwait, Saudi Arabia and Egypt are the lowest.
Figure 20: Total Premiums/Gross Domestic Product

North America Source: IMF World Economic Outlook, Swiss Re and A.M. Best
North America
• The North America region is dominated by the United States of America which
accounts for USD 14 trillion of the total USD 16 trillion in economic activity.
• The North America region is dominated by the United States of America which
accounts
• In 2007, forhousing
the US USD 14market,
trillion of the total
which had USD
been a 16driving
trillionforce
in economic activity.
of the economy,
• Inits2007,
ceased the USupsurge. Simultaneously,
prolonged housing market, which had been amajor
several drivingUSforce of the economy,
commercial banks,
ceased its prolonged upsurge. Simultaneously, several
investment banks and mortgage companies suffered significant financial major US commercial
loss, primarily
relatedbanks, investment
to subprime bankshigh
or other and risk
mortgage
loans.companies
The ripplesuffered significant
effect spread financial
through the US
loss, primarily related to subprime or other high risk loans. The ripple effect
financial system and developed into a global financial crisis. This financial turmoil led
most spread througheconomies
of the world’s the US financial system and developed into a global financial
into recession.
crisis. This financial turmoil led most of the world’s economies into recession.
North America
Economic 2 0 (1) 1 (0) 0 0
Political 3 0 0 0 0
Financial System 2 (3) 1 (0) 0 0 0
16


GDP Per Capita
Figure 21 illustrates the average wealth of $70,000
countries in the North America region. The

regional average for North America is an
$60,000
average of the United States and Canada,
two countries with high levels of GDP per
capita. $50,000
$40,000
USD
$30,000
$20,000
$10,000
$0
C R T -1 N orth A m erica C R T -2 C R T -3 C R T -4 C R T -5

size of countries in the North America Gross Domestic Product (Billions, USD)
region (U.S. and Canada). The size of the
$9,000
countries in this region far exceeds the
average size of any of the Country Risk $8,000
Tiers. The United States is by far the
largest country in the world in terms of $7,000
GDP and Canada is the 10th largest country

in our sample. $6,000
B illio n s, U S D
$5,000
$4,000
$3,000
$2,000
$1,000
$0
N orth A m erica C R T -1 C R T -2 C R T -3 C R T -4 C R T -5


Political Risk Summary – North America
The region scores well in political risk. All
three countries – Bermuda, Canada and Score 1 (best) to 5 (worst)
the United States – have very low levels of
political risk.
C R T -1 C R T -2
International T ransactions P olicy C R T -3 C R T -4

5
C R T -5 N orth A m erica
Source: A.M. Best

Figure 24 illustrates total premiums as 10%
a percent of GDP. The regional average
(average of the U.S. and Canada) is on 9%
par with the CRT-1 and CRT-2 average.

8%
The United States alone represents
approximately 30% of premiums written in 7%
the world.
6%
5%
4%
3%
2%
1%
0%
C R T -1 C R T -2 N orth A m erica C R T -3 C R T -4 C R T -5

Sub-Saharan Africa
Sub-Saharan Africa
• The region
• The of Sub-Saharan
region Africa
of Sub-Saharan contains
Africa a vast
contains array
a vast of climates,
array natural
of climates, resources
natural
and historical
resourcesand
andcultural foundations.
historical and cultural foundations.
• The region as a whole is plagued with violence, crime, malnutrition and
• The region as a whole is plagued with violence, crime, malnutrition and corruption,
corruption, with few of the countries enjoying economic prosperity. In some
with few of the countries enjoying economic prosperity. In some cases, the region is
cases, the region is home to some of the most economically-challenged countries
home to some of the most economically-challenged countries in the world.
in the world.
• The insurance
• The insurance regulatory
regulatory environments
environments through
through most
most of of Sub-Saharan
Sub-Saharan Africa
Africa areare
in ain
stage aofstage of development,
development, workingworking
towardtoward compliance
compliance with international
with international standards.
standards.
Sub-Saharan Africa
Economic 0 0 1 2 2
Political 0 0 2 2 1
Financial System 0 1 1 0 3
Economic Risk
Figure 25 illustrates the average wealth of countries in the region. Sub-Saharan Africa
includes some of the poorest countries that A.M. Best evaluates and the average GDP per
capita is below the average of a CRT-5 country. The wealthiest countries in the region
are South Africa and Mauritius while Ghana and Kenya are the poorest.
Figure 26 shows the average size of the economies in this region. As the graph shows
countries in this region are on average very small, similar to the average for a CRT-5
country. The largest countries are South Africa and Nigeria while Mauritius is the
smallest.
18


GDP Per Capita
Figure 25 illustrates the average wealth of $70,000
countries in the region. Sub-Saharan Africa

includes some of the poorest countries that
$60,000
A.M. Best evaluates and the average GDP
per capita is below the average of a CRT-5
$50,000
country. The wealthiest countries in the
region are South Africa and Mauritius while
Ghana and Kenya are the poorest. $40,000
USD
$30,000
$20,000
$10,000
$0
C R T -1 C R T -2 C R T -3 C R T -4 C R T -5 S ub-S aharan A frica
Figure 26 shows the average size of the Figure 26

economies in this region. As the graph Gross Domestic Product (Billions, USD)
shows countries in this region are on
$2,500
average very small, similar to the average
for a CRT-5 country. The largest countries
are South Africa and Nigeria while
Mauritius is the smallest. $2,000
$1,500
B illio n s, U S D
$1,000
$500
$0
C R T -1 C R T -2 C R T -3 C R T -4 S ub-S aharan A frica C R T -5


Political Risk Summary – Sub-Saharan Africa
Figure 27 shows that the Sub-Saharan
Africa region scores relatively poorly in Score 1 (best) to 5 (worst)
terms of political risk (on average between
CRT-4 and CRT-5). The region performs
particularly poorly in terms of regional
C R T -1
stability. All countries have at least C R T -2
C R T -3
moderate levels of political risk and the International T ransactions P olicy C R T -4
5 C R T -5
political risk in Nigeria is very high. S ub-S aharan A frica
Source: A.M. Best

Figure 28 illustrates total premiums as a 10%
percent of GDP. South Africa, which has
the highest premiums written in Africa, 9%
distorts the average of this ratio in the

8%
region. South Africa has a very high ratio
of premiums to GDP (over 15%) which 7%
inflates the average that also contains the

6%
very low ratios (less than 1%) in Ghana and
Nigeria. Thus, while the average for the 5%
region appears high this can be misleading

4%
in that it is not representative for the
majority of the countries in the region. All 3%
of Africa comprises less than 2% of global

premiums. 2%
1%
0%
C R T -1 C R T -2 S ub-S aharan A frica C R T -3 C R T -4 C R T -5

Western Europe
• Western Europe is a highly developed and affluent region. The European Union
(EU) is an economic and political union of 27 countries that accounts for 30% of world
gross domestic product (GDP). The EU is facilitating a single European market with
standardized regulatory systems and free movement of people, goods, services and
capital.
• The euro-zone is made up of the 16 EU members that have adopted the euro as their
currency.
• Most, if not all, of Western Europe is experiencing a severe economic slowdown

and many countries are, or soon will be, in an official recession. While the European
Central Bank has cut interest rates to spur demand, economic growth in the region has
stagnated.
Western Europe
Economic 9 (11) 9 (7) 1 0 0
Political 15 4 0 0 0
Financial System 15 (16) 4 (3) 0 0 0
Economic Risk
Figure 29 illustrates the average wealth of countries in the region. As the figure shows
the countries in Western Europe have very high levels of GDP per capita, on average
exceeding the CRT-1 average. While all the countries in this region have high levels of
wealth, Luxembourg and Norway are the wealthiest.
Figure 30 illustrates the average size of the economies in the region. On average the
countries of Western Europe are large; however there is a wide variance in size across the
region. The very large economies of Germany, France, United Kingdom, Spain and Italy
bring up the average significantly.
Political Risk
While overall political risk scores in the region are low (15 of the 19 countries have very
low political risk while the other 4 have low political risk), there is some weakness in
28 terms
All rights reserved. No part of this report mayof laborstored
be reproduced, flexibility and
in a retrieval system fiscal
or transmitted in any policy, as illustrated
form or by any means; electronic, mechanical,in figure
photocopying, 31. otherwise.
recording or

GDP Per Capita
of countries in the region. As the figure

shows the countries in Western Europe
$60,000
have very high levels of GDP per capita,
on average exceeding the CRT-1 average.
While all the countries in this region have $50,000
high levels of wealth, Luxembourg and

Norway are the wealthiest. $40,000
USD
$30,000
$20,000
$10,000
$0
W estern E urope C R T -1 C R T -2 C R T -3 C R T -4 C R T -5
Figure 30 illustrates the average size of Figure 30

the economies in the region. On average Gross Domestic Product (Billions, USD)
the countries of Western Europe are
$2,500
large; however there is a wide variance
in size across the region. The very large
economies of Germany, France, United
Kingdom, Spain and Italy bring up the $2,000
average significantly.
$1,500
B illio n s, U S D
$1,000
$500
$0
C R T -1 W estern E urope C R T -2 C R T -3 C R T -4 C R T -5


Political Risk Summary – Western Europe
While overall political risk scores in the
region are low (15 of the 19 countries have Score 1 (best) to 5 (worst)
very low political risk while the other
4 have low political risk), there is some
weakness in terms of labor flexibility and
C R T -1
fiscal policy, as illustrated in figure 31. C R T -2
C R T -3
5 C R T -5
W estern E urope
Source: A.M. Best

Figure 32 illustrates total premiums as a 10%
percent of GDP. These markets are mature.
Moreover, these countries are the base of 9%
several of the world’s leading reinsurers.

8%
While nearly all the countries in the region
have relatively high ratios of premiums 7%
to GDP, Luxembourg, the United Kingdom

6%
and Ireland are among the highest while
Norway and Spain are among the lowest. 5%
4%
3%
2%
1%
0%
W estern E urope C R T -1 C R T -2 C R T -3 C R T -4 C R T -5

Conclusion
This report examined the current population of countries assigned Country Risk Tiers
by A.M. Best and identified the characteristics that are typical to countries in a given
tier (and region). Though the annual cycle for reviewing country risk ends in August,
at which time an updated tiers list will be released, all tier assignments are subject to
change at any time. More information is available at:
http://www3.ambest.com/ratings/cr/crisk.aspx?l=1&Menu=Country+Risk.


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AMB

Country Risk Report:

Rating Analysts Introduction 1

Edward Easop, Vice President

James Gillard, Senior Financial Analyst, Regional Analysis 8

The purpose of this report is to supplement the methodology, CRT-3

Copyright © 2009 by A.M. Best Company, Inc.

Copyright © 2009 by A.M. Best Company, Inc.

and have not been GDP-weighted. In

Source: IMF World Economic Outlook

Countries in higher tiers [CRT-1 being the

and more wealthy than countries in lower

assessment of economic risk, these two,

Source: IMF World Economic Outlook

Copyright © 2009 by A.M. Best Company, Inc.

Political Risk Summary

• International Transactions Policy – measures the effectiveness of the exchange rate

Copyright © 2009 by A.M. Best Company, Inc.

Legal S ystem 4 M onetary P olicy

R egional S tability 1 F iscal P olicy

S ocial S tability B usiness E nvironm ent

G overnm ent S tability Labor F lexibility

Source: A.M. Best

Copyright © 2009 by A.M. Best Company, Inc.

Financial System Risk

Copyright © 2009 by A.M. Best Company, Inc.

To illustrate the relationship identified Figure 4

an insurance industry, it is interesting 9.2%

total premiums written to gross domestic 8%

Country Risk Model. This number was 6%

GDP in the tier.

There is a very large drop off in this ratio 3%

developed and mature insurance industry 1%

while the other tiers represent more

Source: IMF World Economic Outlook, Swiss Re and A.M. Best

Copyright © 2009 by A.M. Best Company, Inc.

Asia-Pacific Central Asia and Eastern Europe

Latin America and Caribbean Middle East and Northern Africa

North America Sub-Saharan Africa

Copyright © 2009 by A.M. Best Company, Inc.

Country Risk Tier by Region

Copyright © 2009 by A.M. Best Company, Inc.

9 Copyright © 2009 by A.M. Best Company, Inc.

Economic Risk Figure 5

in April, the level of economic risk in the

Figure 5 shows the level of per capita GDP

to the averages for each tier average. In

whole, is similar to the CRT-3 average. This

Source: IMF World Economic Outlook

Figure 6 shows gross domestic product

Source: IMF World Economic Outlook

Copyright © 2009 by A.M. Best Company, Inc.

Political Risk Figure 7

Again not surprisingly, given the C R T -3 C R T -2

average CRT-3 country. Australia and New 3

S ocial S tability B usiness E nvironm ent

G overnm ent S tability Labor F lexibility

Source: A.M. Best

Financial System Risk Figure 8

is financial system risk. In Asia-Pacific,

system risk is the most widely distributed 8%

include Hong Kong, South Korea and

Source: IMF World Economic Outlook, Swiss Re and A.M. Best