A.M. Best Updates Long-Term Impairment Rate and Rating Transition Study.OLDWICK, N.J. -- A.M. Best Co. has published its second long-term impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. rate study, Best's Impairment Rate and Rating Transition Study - 1977 to 2004. Financial impairment encompasses a wider array of events than the traditional concept of issuer default. A financially impaired company may still be able to meet its policyholder Policyholder An individual who owns an insurance policy. obligations even though an insurance regulator regulator, n the mechanical part of a gas delivery system that controls gas pressure that allows a manageable flow of drug vapor to escape. regulator see reducing valve. has become sufficiently concerned about its future viability to intervene in some fashion. Since the first impairment rate study, 19 impairments and 11 impairments were added in 2003 and 2004, respectively. These impairment counts are considerably lower than the recent peak of 41 impairments in 2002--a year in which other rating organizations recorded peaks in corporate defaults. Best's Impairment Rate and Transition Study - 1977 to 2004 calculates one- to 15-year cumulative average impairment rates by applying the static pool methodology commonly employed by the credit rating industry in issuer default studies. This study establishes the impairment rates associated with each Best's Rating Best's rating A rating A.M. Best Co. assigns to insurance companies based on the company's ability to meet its obligations to its policyholders. level. The study covers the 27 one-year periods from December 31, 1977, to December 31, 2004. Of the 4,971 U.S. life/health and property/casualty operating insurance companies that carried at least one Best's Financial Strength Rating at some point within this period, 668 companies or an average of 24.7 companies per year became financially impaired. Best's Impairment Rate and Rating Transition Study - 1977 to 2004 demonstrates that impairment rates are inversely in·verse adj. 1. Reversed in order, nature, or effect. 2. Mathematics Of or relating to an inverse or an inverse function. 3. Archaic Turned upside down; inverted. n. 1. related to ratings--the lower the rating, the higher the impairment rate; the higher the rating, the lower the impairment rate. The average annual impairment rate for Secure companies (those companies with financial strength ratings of B+ and above), Vulnerable companies (those companies with financial strength ratings of B and below) and all rated companies were 0.26%, 3.77% and 0.76%, respectively. The 15-year cumulative average impairment rates for Secure, Vulnerable and all rated companies were 8.40%, 34.96% and 12.25%, respectively. Among the significant tables in the study are the following: Best's Cumulative Average Impairment Rates (for 15 years), Best's One-Year Rating Transition Matrix and Best's Implied Impairment Rates of Holding Company Senior Unsecured Debt Unsecured debt Debt that does not identify specific assets that the debtholder is entitled to in case of default. (for 15 years). A.M. Best applies the impairment rates in this study to rating insurance-related structured transactions. These include the securitization Securitization The process of creating a financial instrument by combining other financial assets and then marketing them to investors. Notes: Mortgage backed securities are a perfect example of securitization. May also be spelled as "securitisation. of trust preferred securities and surplus notes, GICs and funding agreements Funding Agreement Illiquid insurance contracts that provide guaranteed principal repayment and interest payments for a predetermined period of time. Notes: Funding agreements are marketed to mutual fund companies and municipal reinvestments. , structured settlements and life settlements, among others. To download To receive a file transmitted over a network. In any communications session, "download" means receive, and "upload" means send. The download/upload often implies a big/little scenario, in which data is being downloaded from the "big" server into the "little" user's computer. a copy of the report, Best's Impairment Rate and Rating Transition Study - 1977 to 2004, visit http://www.ambest.com/ratings/methodology.asp A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at http://www.ambest.com. |
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