Best’s Special Report: Best’s Impairment Rate and Rating Transition Study — 1977 to 2019

OLDWICK, N.J.--(BUSINESS WIRE)--AM Best’s latest special report on the long-term impairment rates of AM Best-rated U.S.-domiciled insurance companies states that seven U.S. insurance companies became impaired in 2019, in line with the average annual number of insurance industry impairments in the past decade.

The Best’s Special Report, titled, “Best’s Impairment Rate and Rating Transition Study — 1977 to 2019,” marks AM Best’s 17th study and is aimed at estimating the risk of impairment of U.S. insurers. The analysis covers 42 one-year periods from Dec. 31, 1977, to Dec. 31, 2019, pre-dating the COVID-19 outbreak across the United States. It includes U.S. insurers that had at least one Financial Strength Rating (FSR) or one corresponding Long-Term Issuer Credit Rating (ICR) during the study period. The report provides summary statistics related to impairments on the FSR scale (13 points) and the ICR scale (21 points) most familiar to users of debt market ratings.

Categories of impairment discussed in the report include:

• Gross impairments, which encompass the broadest definition of impairment and include companies that AM Best has ceased rating by the time of impairment. Gross impairments reduce cohorts of insurance carriers by withdrawn ratings, thus further boosting impairment rates;
• Net impairments, which represent gross impairments, except that insurers that became impaired after rating withdrawal are not counted, and cohorts of insurers are not reduced for withdrawn ratings; and
• Liquidations, which represent insurers counted in the net impairments that were eventually liquidated.

The report also addresses the issues related to comparing the AM Best impairment study with corporate default studies of other major Nationally Recognized Statistical Rating Organizations (NRSROs). These corporate default studies primarily reflect the defaults associated with senior unsecured debt obligations or their proxies. The report emphasizes that any comparisons between AM Best’s impairment studies and the corporate default studies of those NRSROs should be based on AM Best’s holding company ICRs or their proxies, which are effectively equivalent to AM Best’s senior unsecured debt ratings.

To access a copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=298122.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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