A.M. Best Dubs Insurance Industry as Strongly Capitalized Space

In a recent stress test conducted by A.M. Best, to gauge the capital position of insurers varying from life, health to property and casualty, results came out quite favorable.

The rating agency is of the opinion that most insurance and reinsurance companies have adequate capital resources to absorb the potential loss due to prevalent COVID-19 pandemic.

The testing, however, showed that a specific class of insurers was  more sensitive to suffer the loss from the plaguing pandemic, than others. Life and health insurers with high mortality and asset risk, others with wide exposure to mortgage loans and those having small capital bases are more prone to endure losses.

Importantly, property and casualty insurers are better placed than their life and health counterparts. Property and casualty insurers such as The Allstate Corp. ALL, The Progressive Corp. PGR, Berkshire Hathaway Inc. BRK.B among others have been enjoying top-line growth with vast and diversified business portfolios. Premium rates in Personal and Commercial lines of insurance have been rising over the last several quarters, which are likely to support topline growth.

The rating giant’s stress test outcome was based on procedures that scanned insurers’ risk-adjusted capital status, investment portfolios, reserve adequacy and other aspects of risks borne by the rated entities. It also focused on a particular company’s access to liquidity and the laddering and maturing of debt securities within its capital structures.

Also the current balance sheet position  of the insurance industry seems much stronger than the financial crisis of 2007-2008.

Recently, A.M. Best, affirmed the Financial Strength Ratings and Issuer Credit Ratings of different units of Renaissance Re Holdings Ltd. RNR and acknowledged its superior level of risk-adjusted capitalization, among other factors.

Per the rating agency, insurers are likely to see a significant earnings decline in 2020, rather than a material weakness  in risk-adjusted capitalization.

Further,  the deadly COVID-19 outbreak caused disturbances for insurers worldwide. Claims related to workers compensation, events cancellation and other commercial liabilities are some of the challenges faced by insurers. The impact of COVID-19 is wider than other disruptions that commonly hound insurers, such as weather-related events which are restricted to certain geographies.

Additionally, the 2020 Atlantic Ocean hurricane season, is expected to be  above-average, inducing losses greater  than the earlier catastrophes, such as  Hurricane Katrina, the tsunami in Japan or the militant-orchestrated 9/11 terror attacks. The losses can run into tens of billions or half a trillion.

Despite the anticipated  losses that might hit the insurance industry, which is the backbone of the U.S. economy, the industry seems healthy enough to resist the possible adversaries.

Among the stocks mentioned above bith Allstate and Progressive carry a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Berkshire Hathaway Inc. (BRK.B) : Free Stock Analysis Report
 
RenaissanceRe Holdings Ltd. (RNR) : Free Stock Analysis Report
 
The Allstate Corporation (ALL) : Free Stock Analysis Report
 
The Progressive Corporation (PGR) : Free Stock Analysis Report
 
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