A.M. BEST COMPANY, INC. POLICIES AND PROCEDURES. Subject: Monitoring and Dissemination Number: CRPC Policy 5

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1 A.M. BEST COMPANY, INC. POLICIES AND PROCEDURES Subject: Monitoring and Dissemination Number: CRPC Policy 5 Effective Date: 11/29/06 Revision Date: 06/21/07 01/01/09 04/10/09 04/14/10 09/03/10 09/07/10 01/19/11 09/02/11 12/20/12 02/22/13 06/20/13 10/22/13 Purpose: The purpose of this policy is to formalize A.M. Best s practice for the monitoring of published credit ratings and the public dissemination of such ratings. This policy applies to A.M. Best Company, Inc. and its subsidiaries. 1. Credit Rating: When used in this policy, the term Credit Rating means any A.M. Best letter rating that is disseminated to the public via press release, printed publication(s), or by other electronic means such as the A.M. Best website. 2. Types of Credit Ratings Covered: All credit ratings issued by A.M. Best, including Long-Term and Short-Term Issuer Credit and Debt Ratings and Financial Strength Ratings. 3. Monitoring: Credit ratings are monitored on an ongoing basis, except for credit ratings that indicate they do not entail ongoing surveillance (such as public data (pd) ratings, the notrated category (NR and nr) and ratings under regulatory supervision, in liquidation and suspended (E, F, S and rs)). Once a credit rating is published, A.M. Best monitors the rating by: 3.1. regularly reviewing the company s/issue s creditworthiness; Per European Union regulation, ratings emanating from A. M. Best Europe Rating Services Limited are monitored on an ongoing basis and undergo a Rating Review at least annually initiating an Event Driven Rating Update of the rating upon becoming aware of any information that might reasonably be expected to result in a rating action, including termination of a rating, consistent with the applicable rating methodology; 3.3. incorporating all cumulative experience obtained. Changes in ratings criteria, models and assumptions relevant to any type (class) of rating issued by A.M. Best shall be applied where appropriate to both initial ratings and any subsequent ratings published as part of the processes in 3.1 and 3.2; and 3.4. completing a Rating Update on a timely basis. CRPC Policy 5: Monitoring and Dissemination Page 1 of 7

2 4. Proposed and Approved Methodology Changes, including New Criteria/Model Development & Errors Proposed Material Changes: When methodology, models or key rating assumptions used in credit rating activities are proposed to be materially changed or a new criteria, model or assumption is being developed, A.M. Best shall notify ESMA of the proposed material changes/new item (excluding those related to ILS) and issue a press release discussing at least the following: advise stakeholders that a new or a draft version of the item is available for view on the A.M. Best website and provide a link to the website where a detailed explanation of the reasons and implications of the new or amended item can be found; invite stakeholders to summit comments on the item for a period of one month Note: following the comment period, ESMA must be notified of any changes (excluding changes related to ILS) to the item due to the comments received advise stakeholders that any comments provided will be published on the A.M. Best website, as required by regulation, unless it is explicitly requested that these comments be kept confidential (advise stakeholders of this option); 4.2. Approved Material Changes: When methodology, models or key rating assumptions used in credit rating activities are approved to be materially changed by CRPC (this includes the addition of a new BCRM component criteria or associated models) A.M. Best shall: (Note: items through should be done simultaneously) issue a press release disclosing the likely scope of credit ratings to be materially affected; Note: for purposes of this policy, A.M. Best defines a credit rating as materially affected in cases where A.M. Best believes the impact of the subject change in methodology, model or key rating assumption, or significant error identified in credit rating procedure or methodology, in and of itself, may lead to a revision in the published credit rating; excluding those related to ILS, inform ESMA and publish on the A.M. Best website the results of the consultation (i.e. A.M. Best s consideration of the comments received as outlined in 4.1.2) and the new/amended BCRM, criteria component or model together with a detailed explanation thereof as well as the date of application of the amended BCRM; excluding those related to ILS, publish on its website the responses to the consultation referred to in above except in the cases where confidentiality is requested by the respondent in the consultation; complete an Event Driven Rating Update of the materially affected credit ratings as soon as practicable by placing those ratings Under Review; and CRPC Policy 5: Monitoring and Dissemination Page 2 of 7

3 not later than six months after the Under Review Rating Action complete a scheduled Rating Update of the materially affected credit ratings that were based on those methodology, models or key rating assumptions Methodology Errors: When a significant error is identified in or the application of a credit rating methodology that has materially affected a credit rating(s) (as defined in above), A.M. Best shall: notify those errors to ESMA (excluding those related to ILS ) and all affected rated entities explaining the impact on its ratings including the need to review the issued ratings; publish the errors on the A.M. Best website; correct the errors in methodology; issue a press release disclosing the likely scope of credit ratings to be materially affected; complete an Event Driven Rating Update of the materially affected credit ratings as soon as practicable by placing those ratings Under Review; and not later than six months after the Under Review Rating Action complete a scheduled Rating Update of the materially affected credit ratings Administrative Errors In the event that A.M. Best has made public an incorrect credit rating, the discovery of such an error will be immediately made public through the issuance of a press release that states: (1) where the incorrect publication of the rating has taken place, for example, an incorrect rating appears within the Rating Center on A.M. Best s website; and (2) the corrected credit rating. 5. Dissemination: Note: All unpublished rating committee determinations are considered Material Non-Public Information (MNPI, a.k.a. Material Confidential Information) and must be treated with due care and in accordance with Corporate Policy 5 (C-5). To protect MNPI from unauthorized view, any staff member who becomes aware of an unpublished rating committee determination, in any form (print, verbal, digital), must consider the security of the information to prevent any further release. Only authorized personnel may disseminate an unpublished rating committee determination to an authorized recipient (e.g. credit analysts can notify company contacts (including specified third parties) or other credit analysts/administrative staff members who have a legitimate need to know, of an unpublished rating committee determination) Distribution methods: Business Wire News Service; CRPC Policy 5: Monitoring and Dissemination Page 3 of 7

4 A.M. Best s internal wire service (BestWire); A.M. Best s website ( notification lists directed toward subscribers and other media outlets created and managed by Corporate Communications; and A.M. Best publications such as BestWeek, Best s Insurance Reports and Best s Key Rating Guide Transparency and Timeliness of Credit Rating Disclosures: All credit rating actions shall be disseminated as soon as practicable following the notification of the rating action to the company/issuer as outlined in CRPC Policy 2: Committee Determination and Update Policy Press Release - Publicly Traded Organization s Debt Any credit rating action (defined in CRPC policy 2) pertaining to any member/security of a publicly traded company or where any other entity within an organization is publicly traded will be publicly disseminated by means of a press release issued through the Business Wire news service (see Section 6 below). Immediately following the Business Wire release, rating actions will be disseminated through BestWire, published on A.M. Best s website and may be forwarded to other media outlets at the discretion of Corporate Communications. Note: the administrative removal of an outstanding credit rating does not require a press release (see CRPC Procedure 1: Rating Process). Press releases shall include: the rating effective date; an explanation of the key elements underlying the rating opinion; clear identification of any credit rating that is based on public data; the principal methodology or methodology version(s) that was used in determining the rating and the A.M. Best web address where a description of that methodology can be found. Where the credit rating is based on more than one methodology, or where a review of only the principal methodology might cause interested parties to overlook other important aspects of the credit rating, the ratings announcement shall include a discussion of how the different methodologies and other important aspects factored into the rating decision; explanation of any significant adjustments and/or deviations from published methodology, and how these aspects are taken into account in the credit rating information as to whether the credit rating concerns a newly issued financial instrument and whether the credit rating agency is rating the financial instrument for the first time CRPC Policy 5: Monitoring and Dissemination Page 4 of 7

5 name and job title of the lead rating analyst name and position of the person primarily responsible for approving the credit rating where the lead analyst is employed by A.M. Best Europe Rating Services Limited (AMBERS) or A.M. Best Asia Pacific (AMBAP): disclosure of cases where the credit rating committee determination was amended prior to the public release of the rating based on the rated entity s appeal of the credit rating determination; a link to the Terms of Use on A.M. Best s website; a statement as to whether the issuer of a structured finance product has informed A.M. Best that it is publicly disclosing all relevant information about the product being rated or if the information remains non-public; and for insurance-linked structured transaction ratings -- announcements shall provide interested parties with sufficient information about the loss and cash-flow analysis performed by A.M. Best so that interested parties allowed to invest in the product can understand the basis for the credit rating. A.M. Best shall also disclose the degree to which it analyzes how sensitive a credit rating of an insurance-linked structured product is to changes in the underlying credit rating assumptions where the lead analyst is employed by A.M. Best Europe Rating Services Limited (AMBERS), the press release shall state that the rating is being released by AMBERS. Any affiliated rated entity not followed by an AMBERS lead analyst must be excluded from AMBERS press releases where the lead analyst is employed by A.M. Best Asia Pacific (AMBAP), the press release shall state that the rating is being released by AMBAP. Any affiliated rated entity not followed by an AMBAP lead analyst must be excluded from AMBAP press releases For all other ratings where the lead analyst is based outside of AMBERS/AMBAP, the rating will emanate from A.M. Best Company Inc for credit ratings produced by AMBERS, the following additional disclosures requirements are addressed by reference to the A.M. Best Europe Rating Services Limited Supplementary Disclosure Statement all substantially material sources of information, including the rated entity or, where appropriate, a related third party, which were used to prepare the credit rating, together with an indication as to whether the credit rating has been disclosed to that entity and amended following that disclosure before being issued; the meaning of each rating category, the definition of default or recovery and any appropriate risk warning, including a sensitivity CRPC Policy 5: Monitoring and Dissemination Page 5 of 7

6 analysis of the key rating assumptions, accompanied by worstcase scenario credit ratings and best-case scenario credit ratings; the date at which the credit rating was first released for distribution; any attributes and limitations of the credit rating, in particular, whether AMBERS considers satisfactory the quality of information available on the rated and to what extent AMBERS has verified information provided to it by the rated entity or a related third party; regarding a rating outlook, the time horizon is provided during which a change of the credit rating is expected; a reference to the historic default rates published by ESMA in a central repository in accordance with Article 11(2), together with an explanatory statement of the meaning of those default rates Press Release Other The following credit rating actions are also required to be disseminated to the public under the guidelines established in above, other than Public Data ratings: establishment of an initial Credit Rating; Exception(s): The committee rating determination to establish an E or F Financial Strength Ratings and/or the rs Issuer Credit Rating from a Not Rated Category (for example, an NR designation is placed under Regulatory Supervision; E / rs ) does not require the issuance of a press release rating upgrades/downgrades to published credit ratings; the withdrawal of a credit rating on an existing entity, issuer or security made by request or by AMB business decision. The press release must be published in conjunction with the final Rating Update on the existing entity, issuer or security indicating the rating committee justification for the final rating opinion and include an indication of whom initiated the credit rating withdrawal (i.e. AMB or the entity/issuer); and any other credit rating action that a rating committee believes would be of significant public interest Public Dissemination of all Other Credit Ratings: Any other credit ratings not subject to the requirements of Subsections and above will be disseminated to the public via posting to the Rating Center of A.M. Best s website and thereafter in A.M. Best printed publications. CRPC Policy 5: Monitoring and Dissemination Page 6 of 7

7 6. Business Wire News Service Press Release Process: In order to control the flow of information and to minimize the potential for the release of incorrect credit ratings, the following press release process is followed when utilizing Business Wire: 6.1. The analyst/team leader develops the content of the rationale and text for the press release and s a draft to the general AMB Corporate Communications mailbox Corporate Communications edits the text, if necessary, and returns the draft document via to the analyst/team leader (discussing any revisions) Corporate Communications sends the draft release to Quality Assurance. Quality Assurance cross-checks the ratings to be made public in the press release against the ratings to be approved in Best s Publishing System (released to the Rating Center of Best s website) Quality Assurance s the analyst/team leader regarding any questions or discrepancies noted between the contents of the press release and the internal dissemination system, copying Corporate Communications The analyst/team leader revises the press release and internal dissemination system, if necessary, and sends the revised text to Corporate Communications, if needed, copying Quality Assurance Corporate Communications sends a clean copy of the press release to the analyst/team leader to send to the subject company. The analyst/team leader must send the release to a person authorized to receive material non-public information at the subject company, requesting such person to review the release for factual accuracy and to ensure that no confidential information is contained in the release The analyst and team leader revise the press release, if necessary, and forward to Corporate Communications via Corporate Communications reviews the edits and discusses them with the analyst, and coordinates the time frame for the publication of the press release and final approval Corporate Communications s the final draft release to the analyst, copying the team leader and Quality Assurance The analyst enters any pertinent text into appropriate sections of the internal dissemination system regarding the text of the press release Quality Assurance s Corporate Communications when the rating(s) have been accurately proposed for release in the internal dissemination system For ratings emanating from A. M. Best Europe Rating Services Limited, Quality Assurance confirms with the analyst/team leader that the rated entity was informed of the pending credit rating to be published: during its working hours (i.e. the entities working day), and; at least a full working day before publication of the credit rating Corporate Communications sends the press release to Business Wire for public distribution, and Business Wire notifies Corporate Communications when the release has crossed the wire Corporate Communications posts the press release to the A.M. Best website Corporate Communications contacts the analyst/team leader to final approve the rating(s) in the internal dissemination system. Quality Assurance notifies Corporate Communications when the ratings have been posted to the website Corporate Communications s the press release to BestWire for subscriber distribution. CRPC Policy 5: Monitoring and Dissemination Page 7 of 7