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Fitch Gets Stochastic

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An insurance rating agency is coming out with a new system for rating insurers.

Fitch Ratings, New York, has released a draft of its new Prism rating model and is asking insurers, investors, brokers, investment bankers, regulatory bodies and other outside individuals and organizations to comment by July 10.

The Prism model uses “stochastic modeling” techniques to help analysts estimate the effects of hundreds or thousands of different hypothetical scenarios on an insurer or reinsurer’s capital needs.

The new model should make it easier for Fitch analysts to compare insurers in different sectors and in different countries, Fitch says.

Fitch wants to start testing the model this summer on insurers and reinsurers in the life and annuity, non-life and health sectors in France, Germany, the United Kingdom and the United States, the firm says.

Fitch hopes to complete the shift to the Prism model in early 2007. It notes that it will give insurers and reinsurers time to adapt if the Prism model shows that they need more capital to keep their current ratings.


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