Rating Agency: PBR To Affect Few Credit Ratings

A shift to a new, principles-based reserving approach should not affect many life insurers’ ratings, according to Moody’s Investor Service.

But adoption of a PBR system could hurt the ratings of insurers that spend excess capital on activities that do not enhance earnings capacity, according to Wallace Enman, a senior accounting analyst at Moody’s New York.

Advocates of a PBR system want regulators, insurers and others to move toward relying on basic financial principles, actuarial judgment and statistical modeling methods, and away from the traditional reliance on detailed reserving rules and static reserving formulas.

A PBR system could make the risks an insurer assumes more clear and lead to a worldwide “evolution of risk quantification,” Moody’s analysts write in the new PBR report.