AM Best deploying pandemic-related stress test for rated insurance companies

Written by Adam Cadle

19/03/2020

AM Best is developing stress testing that it will conduct on its rated insurance companies’ balance sheets to gauge the impact of the COVID-19 virus fallout on their risk-adjusted capital levels, investment portfolios, reserve adequacy and other aspects of the risks borne by rated entities.

"The COVID-19 virus is unique in its scope and complexity of potential losses, and the uncertainty regarding the near-term impacts further exacerbates the situation," it said.
"Consequently, the direct and indirect effects of the outbreak may not be understood fully for some time."

In the United States, current economic conditions are seen as more likely to affect the balance sheets of life/annuity insurers than those of property/casualty or health insurers, and on 16 March 2020, AM Best revised the US life/annuity industry’s market segment outlook to negative.

AM Best believes the insurance industry is more resilient today to financial market downturns than it was during the 2008-2009 financial crisis, which put heavy attention on liquidity risk.

"At this time, rated companies are expected to be able to meet their commitments, despite the rapidly evolving situation. With these coming stress tests, access to liquidity, as well as the laddering and maturing of debt securities within the capital structures of insurance companies, will be additional areas of focus."

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