AM Best has released its 2020 Country Risk Assessment Reports, providing economic, political and financial system risk assessments on 137 countries.
AM Best determines country risk levels by assessing country-specific factors that could adversely affect an insurers’ ability to meet its financial obligations. Country risk is evaluated and factored into all AM Best ratings. As part of evaluating country risk, the agency identifies the various factors within a country that may directly or indirectly affect an insurance company.
Countries are placed into one of five tiers, ranging from Country Risk Tier 1 (CRT-1) denoting a stable environment with the least amount of risk, to Country Risk Tier 5 (CRT-5) for countries that post the most risk and, therefore, the greatest challenge to an insurer’s financial stability, strength and performance.
Tunisia (formerly in CRT-4), Egypt, Lebanon and Algeria are in CRT-5, reflecting countries with high levels of political and financial system risk and a very high level of economic risk. Morocco is placed in CRT-4, reflecting a moderate level of political risk and high levels of economic and financial system risk.
The GCC countries fare better with the UAE, Kuwait, Qatar and Saudi Arabia in CRT-3, while Bahrain and Oman are in CRT-4.
AM Best said the collapse of global oil prices in 2020 has been a significant shock for the region, as many of its economies depend heavily on hydrocarbon exports. Although oil prices are no longer negative, prices are expected to remain low over the coming year.
AM Best expects that social unrest and political instability in the region may rise, especially in countries with limited fiscal space to provide stimulus measures. Some countries such as Saudi Arabia, Kuwait, Qatar and the UAE are able to absorb the economic costs of the pandemic while others like Algeria, Tunisia and Lebanon have less maneuverability, the report said. Lebanon is in an especially precarious position.