Best’s Special Report: Best’s Impairment Rate and Rating Transition Study — 1977 to 2021


OLDWICK, N.J.–()–AM Best’s latest special report on the long-term impairment rates of AM Best-rated, U.S.-domiciled insurance companies states that nine insurance companies were added to the list of impaired insurers in 2021, up from a total of two carriers in the previous year.

The Best’s Special Report, titled, “Best’s Impairment Rate and Rating Transition Study — 1977 to 2021,” marks AM Best’s 19th study and is aimed at estimating the risk of impairment of U.S. insurers. The analysis covers 44 one-year periods from Dec. 31, 1977, to Dec. 31, 2021. It includes U.S. insurers that had at least one Financial Strength Rating (FSR) or one corresponding Long-Term Issuer Credit Rating (ICR) during the study period. New to this study is a listing of impairments caused by natural catastrophes since 2012, as extreme weather conditions in recent years appear to have contributed to heightened impairments in the U.S. property/casualty (P/C) industry.

All of the 2021 impairments were P/C companies, while the two impairments in 2020 were life companies. Four of the nine newly identified impairments were affiliated companies that became insolvent primarily due to exposure to emerging asbestos and environmental claims; two were affected by catastrophe losses from hurricanes and severe convective storms in Louisiana, Florida and Texas; two were automobile insurance companies with product and geographic concentrations, as well as high risk profiles; and the last one, a small, new company, was placed into liquidation after the state commissioner deemed that any further insurance transactions would be hazardous to its policyholders. Regardless of the increase in impairments, the insurance industry had a good year in 2021 despite increased challenges. Many life/annuity companies attained record levels of capitalization and achieved improved earnings under the long-term low interest rate environment. The majority of health insurers reported favorable earnings and improved capital positions despite challenges and uncertainty related to the pandemic. Most P/C companies, with the industry encountering increased loss costs, elevated catastrophe activity, and pricing challenges, were still able to limit their losses and generate surplus growth with solid risk-adjusted capitalization.


Categories of impairment discussed in the report include:

  • Gross impairments, which encompass the broadest definition of impairment and include companies that AM Best has ceased rating by the time of impairment. Gross impairments reduce cohorts of insurance carriers by withdrawn ratings, thus further boosting impairment rates; and
  • Net impairments, which represent gross impairments, except that insurers that became impaired after rating withdrawal are not counted, and cohorts of insurers are not reduced for withdrawn ratings.

The report also addresses the issues related to comparing the AM Best impairment study with corporate default studies of other major Nationally Recognized Statistical Rating Organizations (NRSRO). These corporate default studies primarily reflect the defaults associated with senior unsecured debt obligations or their proxies. The report emphasizes that any comparisons between AM Best’s impairment studies and the corporate default studies of those NRSROs should be based on AM Best’s holding company ICRs or their proxies, which are effectively equivalent to AM Best’s senior unsecured issue credit ratings.

To access a copy of this report, please visit

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit

Copyright © 2022 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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