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Chuks Udo Okonta
AM Best is developing stress testing that it will conduct on its rated insurance companies’ balance sheets to gauge the impact of the COVID-19 virus fallout on their risk-adjusted capital levels, investment portfolios, reserve adequacy and other aspects of the risks borne by rated entities.
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. Consequently, the direct and indirect effects of the outbreak may not be understood fully for some time. AM Best has conducted stress tests of this nature following previous then-unprecedented events, such as Sept. 11 or the Eurozone crisis.
AM Best believes 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. At this time, rated companies are expected to be able to meet their commitments, despite the rapidly evolving situation. With these coming stress tests, access to liquidity, as well as the laddering and maturing of debt securities within the capital structures of insurance companies, will be additional areas of focus.
Watch a video discussion of what steps AM Best is taking to assess the impact of the coronavirus on the insurance industry with James Gillard, executive vice president and chief operating officer, and Stefan Holzberger, senior managing director and chief rating officer, both of AM Best Rating Services.
For a full copy of the press release, please click the following link:
AM Best: Pandemic-Related Stress Test
AM Best is a global credit rating agency, news publisher and data analytics provider specialising 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