Rating Analysis Tool
Best's Capital Adequacy Ratio
Calculator & Advisor
Estimates BCAR using the current AM Best formula (updated 2016). Scores range from negative to a maximum of 100. Above 0 means available capital exceeds required capital. Click the ? next to any field for a plain English explanation and where to find the number.
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02 / Rating Advisor
Sample loaded: The Travelers Companies (TRV) — 2023 statutory data. All figures in $M. Travelers carries an AM Best A++ (Strongest) assessment.
Available Capital — Adjusted Surplus
The numerator foundation — the company's financial cushion above what it owes. AM Best adjusts raw reported surplus up and down before using it in the formula.
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Reported surplus
Insurance equivalent of net worth. What's left after subtracting everything owed from everything owned. Bigger surplus = bigger cushion.
Where to find it: "Policyholders' Surplus" on the Annual Statement filed with state regulators. Also in 10-K filings and quarterly earnings press releases.
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Unearned premium reserve
Premiums collected for future policy months not yet earned. About 20% of this has hidden economic value (future profit margin) that AM Best adds back to available capital.
Where to find it: Annual Statement liabilities under "Unearned Premiums." Also in NAIC public filings at naic.org.
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Surplus notes / debt
Borrowed money that counts as surplus under insurance accounting but isn't permanent capital. AM Best strips it out. Holding company debt that could drain cash is also deducted.
Where to find it: "Surplus Notes" in Annual Statement liabilities. Holding company debt in the parent 10-K balance sheet under "Long-term debt."
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Gross catastrophe PML
Probable Maximum Loss — worst single catastrophe before reinsurance. AM Best deducts this because the company would need it immediately in a disaster, so it can't count as freely available capital.
Where to find it: 10-K filings under "Risk Management" or "Catastrophe Exposure." Look for "1-in-100 year PML." Also in investor day presentations.
B1 / B2 / B3 — Investment Risk
Capital required to absorb potential investment losses — bond defaults, equity crashes, and interest rate moves.
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Investment-grade bonds (B1)
Bonds rated BBB or better — the bulk of most portfolios. ~2% risk charge. US government bonds get a 0% charge.
Where to find it: Annual Statement Schedule D, Part 1. In the 10-K under "fixed maturity securities" in investment footnotes.
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Common / preferred stocks (B2)
Equity in other companies. Much more volatile than bonds. 15% baseline risk charge (newer stochastic models use 35-40% but 15% is the published baseline factor).
Where to find it: Annual Statement Schedule D, Part 2. In the 10-K under "equity securities."
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Affiliated investments — harshest charge
Money invested in companies the insurer owns or controls. 100% risk charge — you can't easily sell your own subsidiary in a crisis. Most expensive line item per dollar in the model.
Where to find it: Annual Statement Schedule D or Schedule BA under "Investments in Affiliates." Also in 10-K under "investments in subsidiaries."
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Fixed-income market value (B3 input)
Current market value of all bonds. Used to calculate interest rate risk — AM Best stress tests a 120 basis point rate increase and measures the portfolio loss.
Where to find it: Annual Statement Schedule D or 10-K investment footnotes as "fair value" of fixed maturity investments.
B4 — Credit Risk
Capital to cover the possibility that reinsurers or agents owe the company money and can't pay.
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Reinsurance recoverables
Total amount owed by reinsurers after losses. Risk: a reinsurer goes bust and can't pay. ~10% risk charge.
Where to find it: Annual Statement assets under "Reinsurance Recoverables." Also in 10-K reinsurance footnotes.
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Agent balances / receivables
Premiums collected by agents but not yet forwarded. Small risk agents slow-pay or fail. 5% risk charge.
Where to find it: Annual Statement assets under "Agents' Balances" or "Premiums Receivable." Also in 10-K receivables footnotes.
B5 / B6 — Underwriting Risk
The core business — collecting premiums and paying claims. These two components typically drive over two-thirds of total required capital.
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Loss & LAE reserves (B5 — largest driver)
Money set aside for claims filed but not yet fully settled. LAE = cost of investigating and settling claims. If this estimate is too low and needs to be increased later, surplus takes the hit directly. ~15% risk charge.
Where to find it: Annual Statement liabilities under "Losses" and "Loss Adjustment Expenses." In the 10-K under "Reserve for losses and loss adjustment expenses." Typically the single largest liability on the balance sheet.
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Net premiums written (B6)
Total premiums collected minus premiums paid to reinsurers. Represents current underwriting appetite — how much risk is actively being carried right now. ~20% risk charge.
Where to find it: Quarterly earnings releases, 10-K filings under "Net written premiums," and Annual Statement Page 4. Travelers reported $40.2B for full year 2023.
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BCAR SCORE (max 100) at VaR 99.6
Above 0 = capital exceeds requirement
Below 0 = capital shortfall
Maximum possible score = 100
Below 0 = capital shortfall
Maximum possible score = 100
All five confidence levels
VaR 95
--
VaR 99
--
VaR 99.5
--
VaR 99.6 ★
--
VaR 99.8
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Plain English: Each score shows what percentage of available capital remains after covering required capital at that stress level. VaR 99.6 is the primary rating assessment level. A score of 30 means 30% of capital is excess cushion. A negative score means a shortfall exists. VaR 99.8 is the extreme tail — AM Best uses it for risk management discussions, not rating decisions.
| Threshold | Assessment | Status |
|---|
Capital decomposition
Available capital (numerator)--
B1Bond default risk--
B2Equity + affiliated investment risk--
B3Interest rate risk--
B4Reinsurance + agent credit risk--
B5Loss reserve risk — largest driver--
B6Premium / underwriting risk--
Gross required capital--
Covariance reduction--
Net required capital at VaR 99.6 (denominator basis)--
BCAR = (Available Capital - NRC) / Available Capital x 100--
CURRENT FORMULA (post-2016): BCAR = (Available Capital - NRC) / Available Capital x 100. Maximum = 100. NRC = sqrt(B1^2 + B2^2 + B3^2 + (0.5*B4)^2 + (0.5*B4+B5)^2 + B6^2), scaled per VaR level. AM Best official assessment thresholds per published FAQ: Strongest (>25 at VaR 99.6) / Very Strong (>10 at VaR 99.6) / Strong (>0 at VaR 99.5) / Adequate (>0 at VaR 99) / Weak (>0 at VaR 95 only) / Very Weak (at or below 0 at VaR 95). Risk factors are baseline published values. Actual AM Best scores use proprietary stochastic calibrations and analyst judgment not captured here. For directional advisory use only.
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