AM Best has released its methodology “Review of BCAR Treatment for XXX Captives,” which examines its review process and view of risk-adjusted capitalization concerning certain life insurance captives.

Best has been monitoring the evolution of XXX solutions and its impact on direct writers' capital strength (in terms of operating leverage, etc). As part of its standard review of an entity's financial strength which along with other capital ratios is impacted directly by a XXX securitization transaction.

In order for the agency to properly review the relationship between a XXX captive and the direct writer, and to provide appropriate credit in the BCAR (Best's Capital Adequacy Ratio) model, it has developed a list of items necessary to complete its analysis. The analysis would be the same if the securitization was company specific or if a company was a participant in a XXX-pooled securitization.

If Best is comfortable with the stress testing, the structure and the assumptions used in the transaction, and with the stand-alone BCAR of the captive, no additional charges will be made to the ceding company's published BCAR.