In March 2020, A.M. Best began evaluating the impact of the pandemic on ratings. Actions included implementing an operations survey for all rated entities, stress testing Best’s Capital Adequacy Ratio (BCAR) levels on all rating units and modifying sector outlooks.
Key themes being monitored for their potential to pressure future rating levels include:
• A possible resurgence of COVID-19 cases
• Spikes in claims activity
• The deterioration of financial markets
• Business continuity issues
• Potential liquidity strain
• Interpretation of contract language.
A.M. Best COVID-19 Questionnaire – March 2020
1. Explain the current impact COVID-19 is having on the company’s operations. Describe how the company is conducting business, the implementation of any business continuity plans and the latest available impact data on the financial position of the company, including information on sales, claims, exclusions, underwriting and investment performance, liquidity draws, solvency, etc.
2. Discuss any previously modeled stress test scenarios related to pandemic risk (or other applicable scenarios), and if the current (or anticipated) impact falls within risk appetite and tolerance. This is relevant primarily to life and health (L&H) carriers.
3. Comment on any planned adjustments to 2020 financial projections. Please provide updated projections to A.M. Best as soon as they are available and summarize the key assumption changes.
4. Provide an update on any changes the company has made to product assumptions, internal stress testing and scenario or sensitivity analysis.
Responses showed that companies were well prepared with contingency plans and operational disruptions were minimal. Capital and liquidity also remain strong, though uncertainty was a common theme, particularly with regard to potential legislative activism.