Risk-based capital ratios of U.S. life insurers improved in 2001, according to Fitch Ratings, Ltd., New York.
The ratios improved to 366% at year-end 2001 from 277% at year-end 2000. Risk-based capital formulas were created by regulators to establish minimum capital requirements to ensure solvency. For the most part, companies have been carrying RBC well in excess of required minimums that would cause regulators to intervene and take action to ensure solvency.
Julie Burke, a managing director for life insurance ratings at Fitchs Chicago office, says that even though RBC requirements have increased, Fitch is assuming companies will maintain ample RBC. “We think that they will manage to higher RBC levels.”
The RBC tool is an important enough measure of a companys strength to prompt Fitch to develop its own RBC model, she says. The model will be tested this year and is scheduled to be released in early 2003, Burke adds.
The increase in life insurers RBC is attributable to two things, according to Fitch: regulatory codification of statutory accounting procedures and a year-end 2001 modification of the RBC formula.
The codification change raised the RBC ratio, calculated on a dollar-weighted basis, by 22%, according to Fitch. In dollars, surplus for the industry increased by $8.8 billion, or a 4.5% increase, to the industrys year-end 2000 capital and surplus figure.