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Best’s News & Research Service - November 01, 2017 03:31 PM (EDT)

Best’s Special Report: Best’s Impairment Rate and Rating Transition Study — 1977 to 2016

  • November 01, 2017 03:31 PM (EDT)
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Oldwick //BestWire// - A.M. Best’s latest special report on the long-term impairment rates of A.M. Best-rated U.S.-domiciled insurance companies states that one U.S. property/casualty insurer was added to the impaired companies list in 2016, compared with nine impairments reported in 2015.

The Best’s Special Report, titled, “Best’s Impairment Rate and Rating Transition Study — 1977 to 2016,” marks the 14th study conducted, and is aimed at estimating default risk of U.S. insurers. The analysis covers 39 one-year periods from Dec. 31, 1977, to Dec. 31, 2016, and includes only U.S. companies that had at least one Financial Strength Rating (FSR) or one corresponding Long-Term Issuer Credit Rating (Long-Term ICR) during the period. Adjustments to the data or inclusion criteria may make comparison of the results of one study with its predecessors difficult. However, to provide as much consistency as possible, the study’s updates and revisions will be based on a common starting point of Dec. 31, 1977, for FSRs, and Dec. 31, 2001, for Long-Term ICRs.

Subsets of impairment-related data discussed in the report include:


  • · Gross impairments, which encompass the broadest definition of impairments and reflect the data A.M. Best has used to produce its ratings performance statistics in prior impairment studies;



  • · Net impairments, which represent gross impairments, except insurers that became impaired after rating withdrawals are not counted and cohorts of insurers are not reduced for withdrawn ratings; and



  • · Liquidations, which represent insurers counted under the net impairment tabulation that were eventually liquidated.

Over the 39 one-year periods in this study, 5,184 companies had an FSR and 759 became financially impaired. However, just 536 had an FSR at the time of impairment. Additionally, of those 536, 67% or 361 companies went into liquidation. With regards to Long-Term ICRs, of the 3,303 companies that had a Long-Term ICR during the Dec. 31, 2001, to Dec. 31, 2016, period, 151 became financially impaired, although just 117 of those insurers had a Long-Term ICR at the time of impairment. Furthermore, of those 117 companies, 56% or 66 companies went into liquidation. These are significant factors for FSRs and Long-Term ICRs when compared with impairments of corporate defaults. A.M. Best believes that while impairment rates are not directly comparable to corporate default rates, liquidation rates may be closer to issuer default rates calculated by the largest National Registered Statistical Rating Organizations.

To access a copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=267515 .

A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source.



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