Ratings agency AM Best has announced that it is planning to deploy pandemic-related stress testing for its rated insurance companies.
The stress test will be conducted 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,” announced A.M. Best on March 18.
The agency says 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. Consequently, the direct and indirect effects of the outbreak may not be understood fully for some time.”
It added that it expects that, in the U.S., the economic conditions are “more likely to affect the balance sheets of life/annuity insurers than those of property/casualty or health insurers.” On March 16, the agency revised the U.S. life/annuity industry’s market segment outlook to negative.
More resilient
AM Best says it believes the insurance industry is more resilient today to financial market downturns than it was during the 2008-2009 financial crisis. At present, the agency expects that the rated insurers will be able to meet their commitments. “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,” says the statement.
The agency adds that since it is a difficult time for companies to produce additional information, it will delay, by one month, its deadline for the 2019 statement-year Supplemental Rating Questionnaire to May 1, 2020, through its Client Rating Portal. “A questionnaire also will be issued to rated entities to determine how their operations have been affected by the pandemic, which lines of business they expect to be negatively impacted most or if they expect any overall assumptions or forecasts to change.”
AM Best says it will also seek results of each organization’s own stress tests, which are typically considered in the assessment of each rating unit’s enterprise risk management framework.
