New capital modelling tool could play a key role in assessing future capital requirements and improving forecasting, Fitch has said
UK insurers could face rating downgrades under a new capital modelling tool developed by rating agency, Fitch.
The company has warned that UK non-life insurers could face "adverse rating action" as a result of its next-generation stochastic capital model for the insurance industry, PRISM.
Fitch said: "Individual company PRISM results for 2006 will be presented in a report to be published this autumn.
"Any changes to Fitch's ratings will be based on updated PRISM results as of year-end 2006, and will follow discussions with insurers' management as well as a 'cure period' in which companies will be given time to adjust their capital levels or risk profile, if they choose, in order to avoid any adverse rating actions."
“The PRISM model represents a significant step forward in the modelling and understanding of risk in the insurance industry
Greg Carter, managing director of Fitch's EMEA Insurance group
PRISM has been developed over a three year period and publication of UK non-life 2005 results follows an extensive testing period of 57 UK non-life insurers that began in 2006.
According to Fitch, for the first time, PRISM provides a platform to compare insurers' capital positions on a true economic basis.
"The PRISM model represents a significant step forward in the modelling and understanding of risk in the insurance industry," said Greg Carter, managing director of Fitch's EMEA Insurance group. "With this model, Fitch aims to better differentiate risk levels among insurers and align capital requirements with an insurer's risk profile."
The company said that PRISM could play a key role in assessing future capital requirements and improving forecasting, as it adjusts capital requirements for expected changes in market conditions.