S&P: Revises ‘Risk-Based Insurance Capital Model’

May 25, 2007

Standard & Poor’s Ratings Services has published an article titled, “New Risk-Based Insurance Capital Model,” which details revisions it has made in its risk-based capital adequacy model.

S&P described the model as “an integral and quantitative tool in analyzing the capital adequacy for life, property/casualty, health, and reinsurance companies worldwide.” It is employed to analyze the “composition of a company’s capital structure (reliance on hybrid securities and debt to fund its operations), asset quality, reserve adequacy, contingent assets and liabilities, and level of reinsurance dependency to form a comprehensive opinion on the level of capitalization.”

“Varying global accounting standards and complex legal entity structures present challenges in the analysis of insurance company capitalization, but we have taken a global approach noting regional exceptions throughout,” stated S&P credit analyst Grace Osborne. “The opinion will be expressed in terms of adjusted capital being either redundant or deficient across targeted levels of risk-adjusted capitalization consistent with the rating level.”

S&P held a telephone conference yesterday to discuss the changes (See IJ web site May 24).

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