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Captive Insurers Should Understand Rating Model

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February 02, 2016

Madison Scottsdale, an investment manager active in the captive insurance space, has published in the Winter 2015 edition of its quarterly newsletter a first-in-a-series article on the new A.M. Best stochastic Best's Capital Adequacy Ratio (BCAR) model being implemented for property and casualty insurers.

While not all captive insurers choose to be rated by Best's, all captive insurer owners should at least understand the workings of the rating model on a macro basis.

As the article points out, a lot of the BCAR model inputs and formulas remain the same; however, the resulting capital charges can be materially different. Within the investment section of the model, the biggest change is a move from a fixed charge methodology to a value-at-risk approach based on the use of stochastic modeling. 

The Madison Scottsdale piece does a good job of walking the reader through the new methodology and suggesting how companies may be impacted by the changes. We will keep our eyes out for the next quarterly newsletter issue and other updates Madison Scottsdale may provide on the model.

The newsletter is available on the Madison Scottsdale website.

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