Fitch re-asseses post-hurricane capital requirements

In the wake of a devastating hurricane season, Fitch Ratings is urging the property and casualty industry to better understand its capital requirements and take steps to better mitigate catastrophic risk.In a report to be released, entitled New Thinking on Catastrophe Risk & Capital Requirements, the agency says “a fresh look at capital requirements is needed following the insurance industry’s unparalleled 2004-2005 losses.”The agency outlines in its report an updated, “tail value-at-risk approach” for assessing catastrophic risks. The approach is intended to supplement information currently available through modeling assessments. Fitch also calls for “enhanced underwriting for risks not well captured by the simulation models.”The agency also believes a more robust statistical method of calculating potential losses and complete disclosure of the results of these methodologies will help the industry as a whole better prepare for the scale of damage witnessed during the 2005 hurricane season. Fitch “believes significantly enhanced public disclosures of catastrophe exposures and loss distributions will not only help third parties understand this risk, but will also make companies more accountable for their accumulated exposures. Thus, better disclosure will lead to better management decisions.”