(The following statement was released by the rating agency)
Link to Fitch Ratings' Report: Prism Factor-Based Capital Model
LONDON, September 13 (Fitch) Fitch Ratings says in a new report
that the EMEA
insurance sector is strongly capitalised, a key credit positive.
comes after a capital analysis by Fitch of its EMEA insurance
its Prism factor-based capital model (Prism FBM) on end-2015
The portfolio is strongly capitalised, with 87% of entities
Strong', 'Very Strong' or 'Strong', typically above or in line
ratings. Most ratings are constrained by factors other than
capital, e.g. low
profitability, high financial leverage, sovereign constraints,
limited scale or
lack of business diversification.
Net equity is the largest component of Fitch-calculated total
(TAC). However, it accounts for only 51% of TAC across the
portfolio, as there
are several other important components. Capital buffers, e.g.
funds for future
appropriation, account for 12% of TAC, subordinated debt
accounts for 17%, and
value of in-force business accounts for 13%.
For life insurers, target capital (TC) is dominated by asset
accounts for 62% across the life portfolio. For non-life
reinsurers, the largest components of TC are asset, catastrophe,
and liability risks, reflecting the business mix in the
portfolio. Asset risk is
the largest component, accounting for 23% of TC, but it is
than for life insurers because non-life insurers and reinsurers
on taking insurance risk and tend to minimise asset risk.
Prism FBM gives credit for diversification between product
lines, asset types
and types of business. Diversification benefit across Fitch's
ranges from 5% to 34% (as a percentage of TC), with composite
the largest benefit, typically around 25%-30%. Even monoline
insurers have some
diversification benefit, reflecting the diversification between
insurance risks and between asset types.
To assess capital adequacy, Fitch considers Prism scores,
leverage metrics and insurers' own capital models. The Prism
score is the main
focus, because, unlike most other metrics, it is both risk-based
across markets. It also factors in certain risks and sources of
capital that may
not be reflected in regulatory metrics. For example, it allows
asset risks that vary by rating and duration, and capital
buffers such as funds
for future appropriation are fully factored into TAC.
The report "Prism Factor-Based Capital Model Results" is
www.fitchratings.com or by clicking on the link above.
+44 20 3530 1704
Fitch Ratings Limited
30 North Colonnade
London E14 5GN
+44 20 3530 1250
Media Relations: Athos Larkou, London, Tel: +44 203 530 1549,
Additional information is available on www.fitchratings.com
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