In age of virus, A.M. Best to stress-test insurer balance sheets

A.M. Best & Co. on Wednesday said it will stress-test the balance sheets of its rated insurers to gauge the impact of the coronavirus pandemic fallout on their risk-adjusted capital levels, investment portfolios, reserve adequacy among other aspects.

Insurers will also be asked to submit a questionnaire 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 changes in overall assumptions or forecasts, A.M. Best said in a statement.

The Oldwick, New Jersey-based ratings agency said it will also seek out the results of each insurer’s own stress tests, typically considered in its assessment of each rating unit’s enterprise risk management framework.

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,” Best said in the statement.

At this time “rated companies are expected to be able to meet their commitments, despite the rapidly evolving situation,” Best said.

The insurance industry is more resilient today to financial market downturns than it was during the 2008-2009 financial crisis, which put heavy attention on liquidity risk, Best said.

The stress tests will also focus on access to liquidity, as well as the laddering and maturing of debt securities within the capital structures of insurers, Best said.

Similar stress tests of this nature were conducted following previous unprecedented events such as September 11 or the Eurozone crisis, Best said.

More insurance and risk management news on the coronavirus crisis here.