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Supervision Quality To Affect Ratings

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The Chicago office of Fitch Ratings says the firm will be incorporating information about regulatory strictness into insurance company credit and financial strength evaluations.[@@]

Fitch will be classifying the regulatory efforts of countries as “Strong,” “Moderate” or “Weak,” by looking at the countries’ efforts to monitor capital levels and give policyholders priority over other creditors in liquidations.

Companies in countries with especially strong policyholder protection efforts probably will end up with higher insurance subsidiary “issuer default ratings” but lower “recovery ratings” at the parent-company level, Fitch says.

Companies in countries with weak regulatory systems may end up with lower ratings at both the parent-company level and at the insurance operating company level, Fitch says.

Fitch cites the United States and the European Union as examples of markets with Strong regulatory regimes.

Fitch says it classifies the regulatory effort in Bermuda as Moderate and the regulatory efforts in Barbados and the Cayman Islands as Weak.