S&P Global Ratings bases its overall opinion of an insurer's capital and earnings on insights drawn from its Risk-Based Capital Adequacy Model for Insurers, evaluated in conjunction with more qualitative factors. Our risk-based capital (RBC) adequacy model provides a consistent approach to measuring an insurer's capital adequacy.
An Excel template that contains the latest version of the model is available on our website here: https://www.spglobal.com/ratings/en/products-benefits/products/financial-services-credit-tools#insurance. Here, we provide users with an operational guide to the Excel template.
To gain a complete understanding of the model, users should read this guide in conjunction with the related criteria (see "Related Criteria"). Users should also refer to the notes within the model.
The Excel spreadsheet of the model is protected with a password to maintain the integrity of the capital model. Therefore, some of the functionality in Excel is not available. We have, however, enabled some features to support data entry and navigation.
The Excel workbook has several worksheets that provide an organized and modular view of the model to the user. The sheets that are visible by default are listed in the table below.
|Disclaimer||This is the default sheet that is visible when a blank model workbook is initially opened. It contains language targeted at external users of the model, such as issuers and arrangers.|
|S&P Only (not activated for external users)||For S&P Global Ratings use only.|
|Input||Includes all inputs to the model except company-specific analytical adjustments. The sheet is organized into hierarchical groups of rows that can be expanded and collapsed for easy navigation. This feature may not work in some older Excel versions. Buttons at the top of this sheet are provided to help in this situation.|
|Adjustment||Includes the remaining model inputs, namely, company-specific analytical adjustments.|
|Output||Displays high-level, as well as granular, model outputs. It includes row groupings that can be expanded or collapsed for a granular view of the outputs. It also displays results graphically in the form of three charts.|
|TAC||Calculates and displays a granular view of the adjusted common equity (ACE) and total adjusted capital (TAC) calculations.|
|Asset Risk||Calculates and displays a granular view of asset-related risk-based capital (RBC) requirement calculations.|
|Non-Life Risk||Calculates and displays a granular view of non-life RBC requirement calculations.|
|Nat Cat Risk||Calculates and displays a granular view of natural catastrophe RBC requirement calculations.|
|Life Risk||Calculates and displays a granular view of life RBC requirement calculations.|
|Interest Rate Risk||Calculates and displays a granular view of interest rate RBC requirement calculations.|
|Diversification||Calculates and displays a granular view of diversification benefit to RBC requirement calculations.|
|Risk Charges||Displays capital charges for various risk factors that are specified in the related RBC criteria.|
There are hidden sheets within the model whose purpose is to support the visible sheets. The contents of these sheets have been hidden because they are not intended to be used or modified by the user, but these can be unhidden.
Completing The Model
S&P Global Ratings' insurance capital model draws on information from a number of sources, including confidential information. All information should be entered manually in the input and adjustment sheets. Here, we summarize the information that may be required to complete the capital model (as relevant):
- Generally accepted accounting principles (GAAP), International Financial Reporting Standards (IFRS), or statutory and regulatory financial statements.
- Eligible hybrid capital and debt instruments as per the relevant criteria.
- Bond portfolio split by rating, rating provider (e.g., credit rating agencies), term to maturity, and recovery category.
- Equity, infrastructure equity, and property holdings, split by country.
- Reinsurance recoverables, split by reinsurer rating and rating provider.
- Split of commercial mortgages between in good standing, delinquent, and in process of foreclosure, by debt service coverage ratio and by loan to value.
- Split of residential mortgages between performing and nonperforming and by loan to value.
- Bank deposits, split by rating.
- Breakdown of non-life net written premiums (and in some cases the net unearned premium reserve, or an equivalent) and net loss reserves by business line and further split by country/region.
- Mortgage insurance net premium written and net loss reserves.
- One-in-200, -250, -333, and -500-year net natural catastrophe aggregate loss, including details of any reinsurance recoveries and reinstatement premiums, as well as the net aggregate annual average loss.
- Gross and net sums at risk, split by market for both mortality and morbidity - critical illness benefits.
- Net earned premium and net reserves for disability risk and long-term care.
- Breakdown of net life reserves by product type and by country of domicile of liability.
- Pretax conditional tail expectation at 92%, 96.5%, 98.75%, and 99.75% for variable annuities.
- Non-life liabilities split by currency.
- Mean term of non-life loss and unearned premium reserves.
- Duration of the excess assets.
- Exchange rate to the dollar at the balance-sheet date.
- Applicable tax rate.
Input Data Validation Checks
The model includes various error checks and warnings to ensure that all required inputs are completed and that each subsection balances.
The model also includes validation checks to warn users and prevent them from incorrectly completing cells (e.g., inputting text in cells that require numbers or using commas rather than decimal points, or inputting negative numbers in cells that require positive numbers). These checks help ensure that errors are not generated in the model output. We have also included some drop-down boxes for cells that require a specific input.
The company/group information section on the input sheet has completion checks for the inputs of the USD exchange rate and units. Blank values result in an error message being displayed.
The model's inputs include totals from various sections of a company's balance sheet. These input totals, which should be entered manually in line with reported accounts, are compared against the calculated totals. If the difference is greater than 0.5% on a relative basis, then an error message is displayed. The following input sections and totals have this validation:
- Total bonds & loans
- Real estate
- Total invested assets
- Total balance-sheet assets
- Non-life premium risk
- Non-life reserve risk
- Natural catastrophe
- Total life reserves
- Interest rate exposures by segment (life, non-life, and capital)
Any occurrence of the above listed validation errors results in an error message being displayed prominently at the top of the output sheet. Warning messages on the input sheet do not result in an error message on the output sheet. Neither warning nor error messages affect the operation of the model.
Using the row grouping level 2 view or clicking on the "Reset View" button on the input sheet should help identify displayed error messages.
Model Entry Consideration
Users should not "drag and drop" cells in the input sheet or use the cut option. That said, the copy and paste function can be used.
Macros Embedded In Model
There are four buttons available at the top of the input sheet.
To clear entries in the input and adjustment sheets to enable a new company or year to be completed, select the "Clear Inputs & Adjustments" box in the input sheet. Please note that selecting this option cannot be undone. Users may wish to save a copy of the file before selecting this option to avoid data loss.
The two buttons "Reset View" and "Expand All Row Groups" allow users to expand or collapse rows instead of using the Excel feature at the top left of the spreadsheet.
The last button, "Import Data", allows users to import data from the input and adjustment sheets of another model. The import works only with the same version of the model. Please note that selecting this option cannot be undone. Users may wish to save a copy of the file before selecting this option to avoid data loss.
An additional macro embedded in the spreadsheet and available under "Macros" allows users to generate a PDF of the current sheet.
Navigating The Model
The input sheet is split into three sections:
Company/group information. This section is used to provide key information on the company or group.
Total adjusted capital (TAC). This section is used to calculate S&P Global Ratings TAC. Inputs in this section relate to adjustments to common shareholders' equity (or policyholders' surplus, such as for mutual companies) for differences in valuation assumptions for assets and liabilities, including for different accounting standards.
Risk-based capital requirement. This section is used to enter exposures that are used to calculate RBC requirements. It is divided into three subsections:
- Assets: Exposure/information used to calculate asset-related risks.
- Liabilities: Exposure/information used to calculate liability-related risks.
- Interest rate risk and additional information: Exposure/information used to calculate interest rate risk and capture additional information not used for the calculations.
The adjustment sheet is where users enter company-specific adjustments related to either RBC requirements, TAC, or ACE. Adjustments can be entered for all risk types.
The output sheet displays the results of the model; it is a read-only tab.
The box at the top is a summary of the output of the model and shows the calculated TAC and diversified total RBC requirements. A TAC higher than diversified total RBC requirements, for a certain confidence level, will show as a redundancy; a TAC lower than diversified total RBC requirements will show as a deficiency (red).
Farther down the output sheet, there are more granular details that show:
- TAC output calculations,
- Asset risk output calculations,
- Liability risk output calculations,
- Diversification output calculations, and
- Total RBC requirements calculations.
- Insurer Risk-Based Capital Adequacy--Methodology And Assumptions, Nov. 15, 2023
- Hybrid Capital: Methodology And Assumptions, March 2, 2022
This report does not constitute a rating action.
|Primary Credit Analyst:||Charles-Marie Delpuech, London + 44 20 7176 7967;|
|Secondary Contacts:||Patricia A Kwan, New York + 1 (212) 438 6256;|
|Serene Y Hsieh, CPA, FRM, Taipei +886-2-2175-6820;|
|Additional Contact:||Anoop Garg, New York + 1 (212) 438 1946;|
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