S&P to Implement New Way to Assess Insurer Cat Risk

Standard & Poor’s Ratings Services said that its criteria for measuring catastrophe risk for primary insurers will be revised early in the second quarter of this year. (For reinsurers, there are no current plans to further revise these criteria, which were last updated in July 2005.)

The revised primary insurer catastrophe criteria are not expected to affect any ratings immediately, but some companies could face negative rating actions if the new criteria reveal previously uncaptured or poorly managed catastrophe risk. Standard & Poor’s will be discussing these changes in criteria and capital requirements with insurance companies to give them time to adjust their risk profiles in accordance with this new criteria. Traditionally, a 6-12 month phase-in period is allowed.

Standard & Poor’s approach to measuring catastrophe risk has traditionally been based on premium charges. However, when the new criteria are implemented, primary insurance catastrophe risk will be based on exposure, such as a probable maximum loss figure that is both company-specific and based on net exposures as opposed to gross figures. The new criteria capital charge is also expected to be an aggregate probable maximum loss as opposed to an occurrence probable maximum loss. Specific details of the new criteria for primary insurers will be published no later than June 2006.

Source: Standard & Poor’s