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Fitch Issues Warning On Diversification

Rating agency looks to 'set the record straight' on 'ill-conceived'

By Susanne Sclafane | Updated on November 19, 2006

Fitch Ratings last week warned insurers against “ill-conceived diversification” of business lines and territories, undertaken solely to produce better scores in rating agency capital models, suggesting that such attempts might in fact lead to downgrades.

In a joint comment released from Fitch’s Chicago and London offices, analysts wrote that “concentrated insurers that diversify simply to benefit from rating agency and regulatory capital treatment are unlikely to see material benefits from this strategy in the early years, and in fact, could experience ratings downgrades.”

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