OLDWICK, N.J.--(BUSINESS WIRE)--An A.M. Best analysis of the U.S. property/casualty (P/C) industry under the rating agency’s revised Best’s Credit Rating Methodology (BCRM) and its new building block approach revealed that 45% of the rated population had a balance sheet strength assessed at the strongest level. In general, the analysis of this population has indicated robust balance sheets, adequate operating performance, limited and neutral business profiles, and appropriate enterprise risk management structures.
The Best’s Special Report, titled “U.S. P/C Insurers – A Building Block Approach,” states that A.M. Best anticipates that fewer than 5% of its current ratings will change owing to the adoption of the building block approach under the new BCRM. The assessment of rated P/C insurers has generated benchmarking statistics, which are detailed in this report; however, none of these companies have been through a formal rating committee process under the new BCRM.
The primary quantitative tool used to evaluate balance sheet strength is Best’s Capital Adequacy Ratio (BCAR), which helps determine whether a company’s capitalization is appropriate; however, A.M. Best takes all of the balance sheet components into consideration, as the BCAR itself is not the sole determinant of the balance sheet strength assessment. Overall, more than 91% of P/C companies in A.M. Best’s testing environment were assessed at strong, strongest or very strong, revealing well-capitalized companies and overall healthy balance sheets.
“Contributing to strong capitalization is surplus growth, which stems from producing positive cash flows and loss reserve redundancies, managing high quality investment portfolios and maintaining proper reinsurance structures to shield surplus,” said John Andre, a managing director in A.M. Best’s property/casualty division.
Along with balance sheet strength, the key pillars A.M. Best uses in its credit analysis are operating performance, business profile and enterprise risk management. Approximately 51% of the P/C group was perceived to have adequate operating performance, which involved an analysis on the stability, diversity and sustainability of the earnings source, along with the interplay between earnings and liabilities.
“Despite the market pressures that have impacted the A.M. Best rating outlooks, overall operating trends in the P/C space have been adequate,” Andre said.
A.M. Senior Managing Director and Chief Rating Officer Stefan Holzberger will discuss the findings of this report and the BCRM implementation on Monday, Oct. 16, 2017, from 1:30 p.m. to 2:30 p.m. (CDT) at the 2017 Property Casualty Insurers Association of America annual meeting, to be held Oct. 15-17 at Sheraton Grand Hotel in Chicago IL.
To access a copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=266931 .
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