Fitch Ratings today published market feedback and clarifying responses to the three exposure draft reports released on 6 June 2006 covering its new approach to insurance economic capital modelling, which included the introduction of its global, stochastic, economic capital model Prism.
"All comments welcomed the fresh approach that the agency has taken in developing a global stochastic capital model," said Keith Buckley, group managing director and head of insurance at Fitch Ratings. "There were literally thousands of downloads of these reports from our website, and the executive summary discussing Prism is the most popular document within the insurance sector this year."
The agency is not making any major changes to its methodology based on feedback to date. Much of the feedback was simply seeking clarity on certain aspects of the methodology. Some feedback highlighted alternate modelling methodologies that could have been employed for certain risks, but did not imply Prism's approach was inappropriate (only different). Finally, clarity was sought on how Fitch would address risks that were highly complex, and whether Prism was capable of being adapted to highly unique, company-specific parameters, or if Fitch would rely on in-house models in such cases.
Fitch received feedback from respondents in Europe and the United States, including some of the largest (re)insurers in the world. "We applaud Fitch for advancing risk capital determination from a factor based model to one that attempts to calibrate capital requirements uniquely to each insurer's risk profile," read one comment. "We understand the degree of complexity involved and the trade offs one must make in developing such a comprehensive approach. The model description and corresponding technical information disclosed were quite extensive."
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