CONTACTS:
FOR IMMEDIATE RELEASE
OLDWICK - DECEMBER 07, 2018 09:09 AM (EST)
An AM Best analysis of the U.S. life/annuity (L/A) industry under the rating agency’s 2017 Best’s Credit Rating Methodology (BCRM) update shows that the industry remains well-capitalized and maintains sufficient liquidity to withstand a potential downturn in the equity markets or a reversal of the long-running benign credit environment.
A new Best’s Special Report, titled, “US Life/Annuity Benchmarking,” discusses the impact on rated L/A insurers from updates to BCRM and Best’s Capital Adequacy Ratio (BCAR). The assessment has generated benchmarking statistics, which are detailed in the report. According to the report, one-quarter of the rated population had the strongest category of balance sheet strength. The main drivers were improvements in risk-adjusted capitalization and liquidity, consistent with the recent change in AM Best’s market segment outlook to stable from negative on the L/A industry.
The primary quantitative tool used to evaluate balance sheet strength is BCAR, which helps determine whether a company’s capitalization is appropriate; however, AM 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. Still, the current benchmarking analysis found a shift in the scoring from adequate to higher BCAR assessments, owing to absolute improvements and macroeconomic trends.
Along with balance sheet strength, the key pillars AM Best uses in its credit analysis are operating performance, business profile and enterprise risk management (ERM). While profitability remains solid, the industry is experiencing slow to moderate top-line growth, declining investment yields and volatility, which is holding nearly half of the companies’ operating performance to the baseline assessment of adequate. Business profile assessments were impacted by market positions, competition, diversification and product risk, among other factors. Nearly three-quarters of rated entities were found to have a neutral or limited business profile assessment.
Just over nine in 10 L/A companies were found to have appropriate or better ERM frameworks in place that are in line with the size and complexity of each company’s operations. Two percent of the companies were assessed at weak or below, which was unchanged from last year’s analysis.
“ERM assessments need to keep up with the changing environment for insurers,” said Ken Johnson, senior director. “Evolving cyber, macroeconomic and regulatory risks pose challenges that require companies to continue to build and enhance their ERM programs to keep pace.”
To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=280727 .
For a video with AM Best Directors Rosemarie Mirabella and Thomas Rosendale about the U.S. L/A benchmarking report, please visit http://www.ambest.com/v.asp?v=labenchmarking1218 .
To see the Best’s Market Segment Report Outlook on the U.S. L/A industry, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=280726 .
AM Best is a global rating agency and information provider with a unique focus on the insurance industry.