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S&P updates criteria for capital adequacy of insurers

By Patience Saghana
The nation insurance companies may need to up their capital base as international rating agencies are  evaluating capital adequacy of insurance companies particularly local insurers.

Insurance companies that had submitted themselves for rating include, Continental reinsurance Plc, African Reinsurance Corportion, Leadway Assurance Company, Niger Insurance Plc, International Energy Insurance Company, Staco Insurance to mention but a few.

Already Standard & Poor’s is evaluating capital adequacy of insurance companies. S & P updated its asset stress capital factor analysis for assessing the capital adequacy of insurance companies.

The updated criteria apply levels of stressed loss assumptions above the baseline insurance risk-based capital model for corporate bonds.

The most important area to evaluate is a company’s balance-sheet strength, which measures the exposure of the company’s capital to its operating and financial practices.

Underwriting leverage is generated from current premium writings, reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract.

S&P credit analyst Kevin Ahern said the agency is incorporating more current information and new supplemental analytical tools to assess potential stress economic losses for all four asset classes.

The analysis will mainly have an impact on life insurance companies in the U.S., the agency said.
S&P said it will apply the updated criteria to other insurance sectors, such as P&C and health; however, it currently believes the ratings impact to be minimal.

The rating agency does not expect any rating changes for companies it believes can increase their retained earnings or raise capital to compensate for this incremental stress over the next two years, Ahern said.

“We do expect some of the outstanding ratings, specifically in the U.S. life insurance sector, to be affected,” Ahern said. “However, we don’t expect as many rating changes to result from this criteria update as in 2009, when we lowered our ratings on 28 groups of companies throughout the year.”


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