Best's Capital Adequacy Ratio
Published: October 29, 2026 · Last reviewed: October 29, 2026 · Est. reading time 5 minutes
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In plain language: Best's Capital Adequacy Ratio (BCAR) is a score from A.M. Best that shows whether an insurer has enough money set aside to handle bad years. A higher score means a bigger cushion for paying claims.
Technical definition: Best's Capital Adequacy Ratio (BCAR) measures the relationship between an insurer's balance sheet strength and its operating risks: available capital minus net required capital, as a percentage of available capital. Scores run at five value-at-risk confidence levels.
Best's Capital Adequacy Ratio at a Glance
| Attribute | Detail |
|---|---|
| Also known as | BCAR; BCAR score |
| Category | Insurer capital adequacy measure |
| Published by | AM Best |
| Formula | (Available capital – required capital) × 100 ÷ available capital |
| VaR levels | 95.0%, 99.0%, 99.5%, 99.6%, 99.8% |
| Who relies on it | Insurers, reinsurers, brokers, agents across the insurance industry |
| Also interacts with | Best's ratings; NAIC risk-based capital |
Key Takeaways
- BCAR measures how far an insurer's capital exceeds, or falls short of, the capital its risks require.
- Agents use Best's ratings, which BCAR feeds, to judge a carrier's financial health.
- BCAR alone does not set a rating; liquidity, reserve adequacy, and enterprise risk management also count.
- Checking each carrier's current Best's rating at renewal documents supports sound carrier selection.
What Is Best's Capital Adequacy Ratio in Insurance?
Best's Capital Adequacy Ratio is an important financial benchmark in Best's balance sheet assessment. The rating agency calls balance sheet strength the foundation of financial security. BCAR tests whether an insurance company holds adequate capital for the risk exposures in its risk profile, a question that matters to every buyer of insurance from insurance companies.
Required capital covers eight components: fixed-income securities and credit, loss reserves, net premiums written, and potential catastrophe losses. A covariance adjustment trims the total. Available capital starts with reported surplus, then applies equity adjustments for unearned premiums, plus debt adjustments and charges for future operating losses.
A worked example shows the math. An insurer with $100 million of available capital and $80 million of required capital at one confidence level scores 20 there. A score of 20 at the 99.6% level lands in the "Very Strong" band, while anything above 25 earns "Strongest." Carriers can license Best's proprietary capital model for capital management decisions.
How Does BCAR Work?
- Data collection. Analysts start from statutory filings and convert reported surplus into available capital.
- Risk quantification. Capital factors apply to each risk component, including underwriting activities, with stochastic modeling behind items such as reinsurer impairment.
- Score calculation. Each confidence level produces its own score, and a negative score means capital falls short.
- Rating review. Analysts weigh the score against capital quality, reinsurance strategy, internal capital models, and stress tests that model adverse market conditions before assigning a credit rating.
Claim Examples Involving BCAR
Hurricane Season Strains a Regional Property Carrier
A coastal homeowners carrier pays heavy hurricane claims in one season. Surplus drops, and its score slips from "Strongest" to "Very Strong." Claims still get paid, but the rating may be reviewed. The agency checks whether the carrier still meets clients' contract rating minimums.
Thin Reinsurance Behind a Fast-Growing Commercial Auto Writer
A commercial auto writer doubles premium in two years. More premium raises required capital, and Best compares its reinsurance recoverables with an industry composite benchmark. Weak reinsurance coverage leaves a thinner cushion.
BCAR vs. NAIC Risk-Based Capital: What Is the Difference?
Risk-based capital is a statutory minimum for regulatory compliance, and NAIC says it is not meant to rank insurers, while BCAR separates stronger carriers from weaker ones.
| Comparison area | BCAR | NAIC Risk-Based Capital |
|---|---|---|
| Primary use case | Best's rating process | Regulatory minimum capital |
| Coverage/concept type | Graded score at five VaR levels | Action levels below 300% of authorized control level |
| Common mistakes | Treating BCAR as the whole rating | Treating RBC as a strength ranking |
What Are the Most Common Mistakes With BCAR?
- Equating BCAR with the rating. Ratings also weigh operating performance, business profile, and risk management, so a high score guarantees nothing.
- Skipping carrier checks at renewal. Placing a client below the carrier rating a contract requires creates E&O exposure.
- Applying P/C bands to life insurers. The published P/C criteria cover only insurers filing US property/casualty statutory statements, not life insurance companies.
Sources and References
- International Risk Management Institute (IRMI). BCAR definition.
- AM Best. Understanding BCAR for US Property/Casualty Insurers.
- AM Best. BCAR Model – P/C, US brochure.
- National Association of Insurance Commissioners (NAIC). Risk-Based Capital.