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Prism Factor-Based Capital Model

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Fitch Capital Strength Measure

The Prism Factor-Based Model (Prism FBM) is Fitch Ratings' enhanced risk-based capital model and the primary proprietary tool the agency uses to assess the capital strength of insurance organisations in EMEA and Asia-Pacific. Prism enables Fitch to bring insurers writing different business in different regions under different accounting standards into a single framework and to develop a comparable score for use in the rating process.

Increased Transparency

The underlying modelling platform is Microsoft Excel. The spreadsheet is open architecture, with all formulae and parameters easily accessible by users. There are no hidden formulae or macro coding. Prism FBM can be used to produce a robust indicative result by knowledgeable external users based solely on public information, although in some instances Fitch may incorporate additional information provided by rated companies.

Various Capital Analysis Measures

Capital analysis of insurance companies encompasses various viewpoints and is not solely reliant on any particular measure or model. Fitch will typically consider Prism FBM as the primary focus for assessing capital adequacy but will also consider other measures such as regulatory capital ratios, leverage metrics and, in selected cases, insurers' own in-house capital models. Depending on the situation, one measure or tool may become more or less important in the development of the rating opinion.

Capital Strength's Ratings Role

Fitch's assessment of capital strength does not in itself establish the rating. However, Fitch would typically expect a 'AAA'-rated insurer to have a Prism FBM score of extremely strong, a 'AA'-rated insurer to have a Prism FBM score of at least very strong, an 'A'-rated insurer to have a Prism FBM score of at least strong, a 'BBB'-rated insurer to have a Prism FBM score of at least adequate, and a 'BB'-rated insurer to have a Prism FBM score of at least somewhat weak.

Analytical Tool

Prism FBM is designed as an analytical tool, not a capital management tool. The capital charges are designed to be used in EMEA and Asia-Pacific as part of Fitch's analysis to develop a relative capital score as part of an overall assessment of typically diversified established insurance companies that Fitch rates. The model is therefore designed to be used as an information tool in the analytical process, not to optimise capital or to make business decisions.



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