Best's Capital Adequacy Ratio (BCAR), which A.M. Best uses in the rating process to measure insurers' risk-adjusted capital levels (the relative level of capital required to support an insurer's risks to the level of capital held, adjusted for various factors), generally results in a more conservative view of required capital than most regulatory tests, which are designed primarily to assess risk of insolvency. Additionally, A.M. Best imposes a number of stress tests of insurers' capital, including multiple catastrophes or various interest-rate/equity market scenarios, to determine the adequacy of capital.
Given insurers' generally favorable levels of BCAR, A.M. Best expects minimal direct impact on an insurance company's capital as a result of a SIFI designation. However, to the extent that an insurance company must dividend out funds to meet an enterprise's need to reallocate capital to comply with SIFI requirements, there could be an adverse impact on that insurer's risk-adjusted capital. Any changes in investments made to reduce regulatory capital requirements or improve stress-test results would be expected to improve an insurer's risk-adjusted capital, based on BCAR.