Electrical machines with rare-earth permanent magnets (PMs) exhibit high torque density and good efficiency over a wide operation range. However, the increased rotor eddy current loss under worst operating conditions can reduce the machine efficiency and also increases the magnet operating temperature which in turn may result in its partial demagnetization especially under the event of faults. The research underpinned in this thesis describes the methods to tackle the issues concerning the machine complexities and also the computational burden while predicting 3-dimensional (3D) rotor eddy current loss in PM machines. Magnet loss variation with change in field weakening angle is studied comprehensively based on the interaction between armature and the slotting harmonics and also with change in the magnet pole arc angle. The novel 3D Fourier method proposed in this thesis accounts for the natural eddy current boundaries within the magnet, derives the pattern of eddy current loss variations associated with different magnetic field harmonic components with increase in axial and circumferential number of segmentations of PMs in surface mounted PM (SPM) machines. The significance of the eddy current source (flux density variations) components and the eddy current density components towards the contribution of the magnet loss is examined. The diffusion of the magnetic field along the axial and circumferential direction is included in the proposed method to accurately predict the rotor eddy current loss at high frequency operating conditions. The total 3D magnet loss accounting all the armature harmonic frequencies is predicted for SPM and interior permanent magnet (IPM) machines with increase in axial and circumferential number of segmentations. The after effects of the increased rotor eddy current loss is investigated in detail towards the last part of the thesis. The continuous demagnetization assessment method is proposed to assess the partial demagnetization in PMs when the machine is operating under different fault conditions at increased magnet temperatures and also predicts the post fault performance.