The U.S. life insurance industry has been overcapitalized, and that level of overcapitalization increased in 2006.
Douglas Meyer, a managing director in Fitch Ratings’ Chicago office, gave that assessment today during a teleconference focusing on the firm’s Prism capital model.
Fitch has incorporated the Prism model, which relies on stochastic forecasting techniques, into the rating process the firm uses both for life insurers and property-casualty insurers.
Stochastic modeling involves use of computer simulations to determine how a product or company might perform under a wide range of randomly changing conditions.
The U.S. life industry ended 2006 with $253 billion in capital, or about $54 billion more capital than it needed to meet the Prism aggregate AAA rating standard, Meyer said.
At the end of 2005, the industry had $249 billion in capital, or about $45 billion more capital than it needed to meet the AAA standard, Meyer said.
The average Prism score for the U.S. life universe as a whole held steady in 2006 at AA plus.
For the life insurance sector and large mutuals, the overall Prism rating was AAA.