Fitch: FSA's capital requirements to leave ratings unaffected

The FSA's new capital requirements will not result in widespread ratings actions for non-life insurers, said Fitch Ratings.

However, Fitch said it believes the Enhanced Capital Requirement (ECR) charging factors may result in some regulatory arbitrage.

It said it was also disappointed that the ECR calculation will not be made public and would encourage the FSA to make this data available.

“Any potential rating changes will primarily depend on how firms allocate capital as a result of any additional risks identified through insurers' Individual Capital Assessments (ICA) and Fitch's view on whether this allocation (or any other action the insurer takes to mitigate the risk) is sufficient,” said Simone Peakin, an associate director in Fitch's Insurance Group

“Ratings adjustments are not, however, expected to be widespread,” she added.

Fitch said it believes that charging factors in the ECR calculation may result in insurers reassessing their product and investment portfolios.

Insurers will also need to reassess the profitability of their various product lines given the new capital requirements, it added.

The ratings agency said it would asses what impact, if any, a change in investment or business portfolio may have on an insurers risk profile and, therefore, its ratings.

Fitch has prepared a report, entitled 'If the Capital Fits, Wear It; Regulatory Capital Requirements for UK Non-life Insurers', in response to the FSA policy statement on capital requirements.

The report is available for download from the Fitch website.