AM Best is developing a stress test to apply to its rated insurance companies' balance sheets to gauge the impact of the COVID-19 virus fallout on their businesses.
Specifically, it will assess the impact on risk-adjusted capital levels, investment portfolios, reserve adequacy and other aspects of the risks borne by rated entities. It will also focus on access to liquidity and the laddering and maturing of debt securities within capital structures.
The rating agency compared the stress test to others it had created following previous then-unprecedented events, such as the terrorist attack of September 11 and the Eurozone crisis.
Overall, AM Best argued the insurance industry is more resilient now than it was during the 2008-2009 financial crisis, when the focus was on liquidity risk. Today, it said, rated companies are likely to meet their commitments, despite the rapidly evolving situation.
AM Best said: “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.”
Given the challenges companies face, AM Best will also delay its deadline for the 2019 statement-year supplemental rating questionnaire by one month, to May 1.
AM Best, COVID-19, Stress test