22 May 2017
AM Best has said it will not directly use Solvency II results in its rating assessments over concerns the regime does not provide an accurate picture of carriers’ balance sheets.
In a statement released today to coincide with the first solvency and financial condition reports under the new regulations, the rating agency said while Solvency II represented the European regulatory position and is intended to be risk-based, it would instead continue to use its internal Best’s Capital Adequacy Ratio (BCAR) model.
It said: “It is AM Best’s opinion that [Solvency II] may not provide a reliable picture of the underlying economics of an insurer’s balance sheet at either the detailed or corporate level, and neither does it provide comparisons across insurers on a global basis.”
The agency added that it did not believe the quantitative data of the entire regime gave a “complete picture of a company’s credit risk”, much less a single ratio.
However, it noted that data from the regulations could influence the inputs into the BCAR model, particularly information related to available capital in life insurance operations for European carriers.
While the regime has led to an increased burden for all European (re)insurance subsectors, life insurers are set to be the most heavily impacted by the changes, AM Best said.
Fellow ratings agency Fitch said in early 2016 it would also opt not to use Solvency II metrics in its ratings as it said the data was not comparable between insurers because of the varied calculations in use.
