S&P Updates Insurer Capital Adequacy Criteria Boosting Rating Stability
S&P Global Ratings has implemented updated insurer risk-based capital adequacy criteria as of November 15, 2023, resulting in revisions to credit ratings and outlooks for multiple insurers globally. In 2024, 22 insurers were upgraded by one notch and 17 received positive outlook revisions or were placed on positive CreditWatch, driven largely by increased available capital and improved reserve adjustments that better reflect risk diversification benefits under the new criteria.
Mortgage insurers benefited specifically from recalibration of premium and reserve risk capital requirements. Conversely, 3 issuers were downgraded by one notch, and 2 outlooks were changed from stable to negative, primarily due to a revised definition of capital resources which constrains the recognition of debt-funded capital for some companies. Overall, most rated insurers and reinsurers maintain capital levels consistent with S&P's two highest stress scenarios, demonstrating strong resilience despite market volatility and geopolitical uncertainties. Globally, capital buffers remain robust, enabling insurers to manage investment and geopolitical risks effectively.
The revised criteria improve global consistency and transparency by consolidating methodologies and updating regulations and risk assumptions. The report covers regional analysis including North American property/casualty insurers, global reinsurers, Taiwan's life insurers facing new capital resilience tests, and insurance markets in EMEA, APAC, and Latin America. Business growth and shareholder returns are expected to modestly outweigh earnings in 2025, causing only slight capital deterioration. Enhanced risk management practices, such as strategic asset allocation and concentration limits, alongside capital buffers and product redesign, continue to underpin rating stability.
The criteria set starting quantitative benchmarks for capital adequacy assessments and are applied alongside broader insurer rating methodologies to gauge competitive advantages and earnings strength. Regional differences in accounting and regulatory regimes pose analytic challenges but are addressed within the global framework.
The revised capital adequacy criteria enable more precise differentiation of insurer risk profiles, enhancing analytical rigor relative to prior frameworks. This development aids insurance professionals in understanding shifting regulatory and market conditions affecting insurer capital positions and creditworthiness worldwide.