Insurers, Regulators Push Back On Changes In S&P Rating Criteria

zulqz December 8, 2022Last Updated: December 8, 2022

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Insurers, regulators, and lawmakers in Congress have expressed concerns about the proposed revisions regarding how Standard and Poor’s Global Ratings defines “available capital” in its rating criteria. In particular, S&P would no longer consider certain debts available for assessing insurance companies’ financial strength and ability to settle claims.

epa03028011 A sign displays the name of Standard & Poor’s financial rating services in its offices in Paris, France, 08 December 2011. On 05 December, Standard & Poor’s placed the EU AAA credit rating on credit watch, warning it may downgrade the euro-zone countries if a solution Europe’s debt crisis during was not agreed on. EPA/IAN LANGSDON

“Disruptive” and an “overuse of market power” is the way they describe the ABIIR (ABIR) defined the policy in its 18-page letter addressed to S&P. The company has asked for comments by April 29 regarding its proposed method and assumptions to evaluate the capital adequacy based on the risk of reinsurers and insurers.

According to ABIR’s opinion, the changes proposed by S&P could result in the abrupt disappearance of billions in a single day that would otherwise be available to cover catastrophe risk. This field has seen the average insured loss has risen almost 700 percent since the 1980s.

“This debt is viewed as capital by the regulators,” ABIR CEO John Huff says in a press release. “If carriers are required to modify their debt arrangements and receive less favorable terms in the present. Any new debt will raise financial leverage and is in opposition to the stability they seek from an agency rating.”

The U.S. House of Representatives Members and Senate, together with U.S. state insurance regulators by way of the National Association of Insurance Commissioners, are also concerned regarding the proposed changes to S&P’s criteria for rating.

ABIR highlights the ambiguity of the timetable for the rollout of the changes planned in the statement, “Insurers and reinsurers will have no time to respond to the new debt treatment before S&P has indicated the changes will go into effect.”

“There is no glide path or grandfathering,” Huff declares. “It’s simply an rock. “

Bermuda’s insurers are urging that the agency rating offer an interim period to allow changes to the rating agency’s policies and to grandfather existing debt in the market.

“If there’s a transition plan, we can work within that,” Huff states. “But being so abrupt is very disruptive. Standard & Poor’s should be stabilizing the market, not causing disruption.”