[July 22, 2011]

BestWeek: A.M. Best May Revise Rating Outlook for US Life/Annuity Sector

Continuing economic weakness in certain European countries and the debt crisis in the United States, which remained unresolved as of July 22, have elevated the risk profile of life insurers, according to this week's issue of BestWeek U.S./Canada. As a result, A.M. Best is considering a revision in the rating outlook for the U.S. Life/Annuity sector to negative from stable.

Supplementing the standard review of capital adequacy, A.M. Best is reviewing the sensitivity of life insurance companies' risk-adjusted capitalization under stressed scenarios. Initial data indicate that some life companies' risk-adjusted capital positions are more impacted under these extreme stress scenarios. The results are still under study, and each company will be reviewed on a case-by-case basis.

Also featured in BestWeek, is the A.M. Best Co. analytical briefing "Sovereign Debt Pressure Spreads to Insurers' Balance Sheets," in which A.M. Best reviews U.S. insurance company exposure to sovereign debt in Europe and the United States. In the United States, in particular, the government impasse on raising the debt ceiling has created an immediate need to assess the impact of a downgrade to te U.S. sovereign debt rating. Based on stress testing performed by A.M. Best using its proprietary capital model, Best's Capital Adequacy Ratio, the company is examining how a potential U.S. sovereign downgrade would impact the portfolios and financial strength of U.S. insurance companies.

Other exclusive BestWeek content includes a look at how the U.S. property/casualty industry continues to experience favorable prior-year loss-reserve development for the first-quarter, continuing a five-year trend. While second-quarter catastrophes should have little impact on reserve development, releases will slow, putting pressure on underwriting and earnings, according to Richard Attanasio, A.M. Best Co. vice president of property/casualty ratings.

Both existing and new catastrophe bonds have already been impacted by Risk Management Solutions Inc.'s updated U.S. hurricane model, according to an A.M. Best Co. analyst. An estimated 71% of existing cat bond capacity outstanding is exposed to U.S. wind risk, according to a second quarter insurance-linked securities market update by Willis Capital Markets & Advisory. The immediate impact of RMS' RiskLink Version 11.0 US Hurricane Model led to the revision of attachment and exhaustion probabilities, and expected loss percentages, of 32 tranches of existing catastrophe bonds, said Asha Attoh-Okine, managing senior financial analyst of insurance-linked securities at A.M. Best Co.

BestWeek is published by A.M. Best Co. for insurance professionals. To subscribe, visit http://www.ambest.com/sales/BestWeek.

Founded in 1899, A.M. Best Co. is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2011 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

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