Insurer capital model gets a facelift

Standard & Poor’s Ratings Services is currently updating its risk-based capital model. S & P’s explains, in it report titled “Credit FAQ: An Advance Glimpse At The Upcoming Changes To The Insurer Capital Model,” that it is testing newly developed capital factors against the latest capital model used in its analytics for a large number of companies globally. The outcome of this testing, to be completed by July 2006, will facilitate the fundamental changes S & P’s will be making to its modeling of insurer capital adequacy.Upon completion of testing, S & P’s says it will publish an article identifying all proposed risk-adjusted factors, explaining how each factor was developed and highlighting the risk profiles that are most and least affected by the proposed changes. S & P’s says it will solicit feedback from insurance companies and other interested market participants on the proposed revisions to the capital model over a three-month period after release of the full article. The updated capital model is expected to be finalized in the fourth quarter of 2006, according to the ratings agency. In 2007, S & P’s will run both models simultaneously to ensure consistent application of the results as well as to identify any additional changes that need to be made to the updated model. S & P’s says that as it gains more confidence in the revised capital-modeling indications, they will place greater reliance on it for analytical purposes.