A.M. Best Special Report: Best’s Impairment Rate and Rating Transition Study – 1977 to 2011 [Professional Services Close – Up]

This is the ninth study conducted by A.M. Best Co. on the long- term impairment rates of A.M. Best-rated, U.S.-domiciled insurance companies. It updates Best's Impairment Rate and Rating Transition Study - 1977 to 2010, published May 16, 2011.

The study covers the 34 one-year periods from December 31, 1977 to December 31, 2011 and only includes companies that had a Best's financial strength rating (FSR) over this period. Of the 5,070 individual U.S. companies that carried a Best's FSR, an average of 21.3 companies per year, or 725 companies, became financially impaired. Impairment, generally defined as any official action by a state regulator that restricts the insurance business activity of an operating insurance company, goes beyond the traditional concept of issuer defaults as discussed later.

Since the last impairment study (which included impairments from 1977 through 2010), eight companies have been added to the list of impaired insurers for 2011, as listed in Exhibit 15. The eight impairments, which were all P/C insurers, is the same number of impairments as in 2010.

The average annual impairment rate for all insurers over the period of this study was 0.67 percent. Secure companies-with FSRs of B+ (Good) and above-and Vulnerable companies-with FSRs of B (Fair) and below-had average annual impairment rates of 0.24 percent and 3.73 percent, respectively.

A.M. Best's rating transition rates remained stable over the period covered by the study. Among companies with Secure ratings, 98.23 percent maintained their Secure status over a one-year period. The remaining 1.77 percent were downgraded to Vulnerable or became impaired over a one-year period.

To access a complimentary copy of this special report:

ambest.com/bestweek/bestweekreports.asp?rt=ir.

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