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Best's Special Report: Risk-Adjusted Capitalization Continues to Increase for U.S. Life/Health Industry.

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ENPNewswire-September 6, 2021--Best's Special Report: Risk-Adjusted Capitalization Continues to Increase for U.S. Life/Health Industry

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Release date- 03092021 - The U.S. life/health industry improved its risk-adjusted capitalization in 2017-2019 due to strong growth in available capital, particularly in 2019, according to a new AM Best report.

AM Best updated its rating methodology in October 2017 for greater transparency. Additionally, its Best's Capital Adequacy Ratio (BCAR) model was retooled to measure required capital at multiple value-at-risk (VaR) levels to determine capital adequacy at more extreme levels. BCAR now measures the excess of available capital over required capital.

The Best's Special Report, titled, 'Risk-Adjusted Capitalization Continues to Increase for Life/Health Industry,' states that the life/health industry composite's BCAR score as of 2019 was 28.0% at the 99.6% VaR level. A score over 25% at this VaR level is deemed strongest for a beginning BCAR balance sheet strength assessment. However, as the report notes, several other attributes are used to assess balance sheet strength, which, along with operating performance, business profile and enterprise risk management, are used to determine the final rating.

Preliminary results for 2020 year-end data show that the aggregate BCAR at the 99.6% VaR level for the life/health industry will decline to 25.9%. Available capital increased by $20.4 billion, reflecting life/health insurers' continued capital and surplus growth; however, required capital is expected to increase by $25.9 billion.

Increases in fixed-income required capital are being driven by increases in allocations of NAIC Class 2 bonds, while increases in BA...

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