U.S. insurers that have built internal economic capital models to satisfy rating agency and regulatory requirements have only done part of the work needed to get full value from such models, according to a consultant.
Richard Goldfarb, a senior manager for Ernst & Young in New York, said, "Firms that have adopted economic capital models but haven't yet addressed the issue of using the results to run their businesses still have a lot of catch-up to do."
Common definitions of economic capital refer to an amount of capital required to support retained risks and to absorb severe losses at some target level of risk tolerance.
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