Solvency II will enhance but not replace S&P’s model
Rating agency Standard & Poor’s (S&P) has confirmed that although Solvency II capital metrics will enrich its rating analysis, it will not replace S&P’s own capital model.
In 2016, when Solvency II comes into force, analysts trying to judge insurers’ capital adequacy will be faced with an increased number of capital adequacy metrics. However, S&P is determined to stick with its own model.
“This partly reflects the need to have a global tool to assess capital adequacy, for consistency and comparability with other regions. Our capital model is also relatively simple to use. Nevertheless, we will pay close attention to the output from the Solvency II models,” said the rating agency.
Speaking at the S&P insurance market forum yesterday (May 19), Miroslav Petkov, director at S&P, explained that each capital adequacy metric has its own strengths and weaknesses.
He added that the rating agency will consider Solvency II capital metrics when considering the assessment of the risk of regulatory breach, the allowance for internal model adjustment to its capital model and insights about the insurers' risk exposure.
Petkov explained that comparing the models is challenging because of differences in methodologies and inherent modelling uncertainty.
The rating agency said: “For us, Solvency II has value beyond just the introduction of a more robust regulatory regime. It provides us with additional insights by offering another risk-sensitive quantification of an insurer's risk exposures. These metrics, together with our capital model, will enhance our understanding of insurers' risk exposures and support the depth of our ratings analysis.”
