Best Performs Added Stress Testing Due to Europe’s Economic Uncertainty

November 22, 2011

A.M. Best Co. announced that it has performed additional stress tests of the balance sheets of insurers’ exposure to euro zone debt as economic conditions within the region continue to worsen.

Best has published the results of the findings in full in a recently published analytical briefing: “A.M. Best’s Additional Stress Testing in Light of European Economic Uncertainty.”

Best said the initial results of the stress testing – performed using the rating agency’s proprietary capital model, Best’s Capital Adequacy Ratio (BCAR) – were released in September 2011. The action “was prompted by the severe market turbulence during the two months prior. Further weakening of this economic environment holds significant implications for insurers with assets in euro zone countries (particularly Portugal, Italy, Ireland, Greece and Spain) and for those operating in the region.”

Although Best said it “does not forecast a default in Italy, the third-largest bond issuer in the world, “there exists a sharp increase in economic uncertainty within the euro zone.”

As a result Best said it is continuing to monitor those “insurers, and companies with outsize exposure in relation to their risk-adjusted capital,” which are “being evaluated for potential rating actions.”

In addition Best said the “companies that do not stand out as having excess exposure, but still could be negatively affected, are being asked to provide additional information.

“Companies that appear to have little exposure will be monitored as growth and earnings prospects could be pressured over the near term.”

Source: A.M. Best

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