Fitch to assess insurers’ internal capital models

Fitch Ratings has released its proposed guidelines for assessing insurance companies’ internal capital models.”Fitch Ratings welcomes the use of in-house capital models developed by insurers as an important part of the enterprise risk management of these organizations,” the agency says in an online posting announcing its new guidelines for assessment.Fitch went on to note that it “will not approve, endorse or require any particular form of capital model or methodology. The agency’s review will be guided by principles requiring that models are suitable for the organization, robust and provide a meaningful stress. “Of particular interest will be key sensitivities of the model, credit taken for management actions and changes that are made to the model over time (including changes to the parameterization of the economic scenario generator (“ESG”), where employed.)”In general, Fitch says, the ratings agency will give a higher weight to the insurer’s capital model if it demonstrates the following:a high degree of transparency,a proven track record,a suitable level of sophistication, andappropriate testing and controls over use.Additionally, Fitch says, there should be “suitable expertise within the company to run and interpret the model. The agency will also be looking for companies “to embed the model within an enterprise risk management framework that makes use of the information generated by the capital model.”Fitch says it will likely give a lower weighting to models “used solely to fulfil regulatory requirements.”