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S&P launches standardized capital model


NEW YORK--Standard & Poor's Corp. has released an enhanced insurance risk-based capital model for life, annuity, property/casualty, health insurance and reinsurance companies worldwide.

According to New York-based S&P, the globally consistent framework it developed for analyzing insurance company capital includes regional risk factors that were developed to reflect unique features of local insurance markets.

The rating agency said that from its initial request for comment in November 2006 until the comment period's end in February, it received more than 200 responses from market participants around the world. That feedback played an important role in the development of the enhanced model, S&P said.

One major change in the new model's framework is an expression of capital adequacy for each rating level, the rating agency said, and redundancy or deficiency that can be quantified against the target capital amount. The model uses confidence levels for each rating category, based on observed five-year default rates.

Also, for the first time, S&P will provide an explicit diversification credit in the capital model across sectors and between product type and risk type, as well as for investment risks.

S&P began implementation of the new model in late May, and both the enhanced model and the current model will be used in parallel until the end of the year, with S&P making adjustments in the enhancement if necessary. Early next year, S&P expects the enhanced model to become the sole tool used for assessing capital adequacy in the ratings process.

Information on the new capital model, its changes and a user's guide can be found online at www.standard