AM Best said it has published its first long-term impairment rate study, “Best’s Impairment rate and Transitional Study, 1977 – 2002”.
It said financial impairment encompassed a wider range of events than the traditional concept of issuer default.
It said a financially impaired company might still be able to meet its policyholder obligations even though an insurance regulator had become sufficiently concerned about its future viability, that it had intervened in some manner.
The study calculates one-year to 15-year cumulative average impairment rates by applying static pool methodology commonly used by the credit rating industry in issuer default studies, said AM Best. The study establishes the impairment rates associated with each Best’s rating level.
AM Best said the study had found that impairment rates were inversely linked with ratings – the lower the rating, the higher the impairment rate, and so on.
It said that in the period covered by the study, 4,936 US companies carried a financial rating from AM Best, with 583 of these companies becoming financially impaired.
The study can be downloaded from the AM Best website at ambest.com/ratings/impairment.pdf
