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November 02, 2008 at 02:00 PM
One of the more interesting projects state insurance commissioners have on the burner is a plan to start up a rating agency.
The first mention of joining the big 4–A.M. Best, Fitch Ratings, Moody’s Investors Service and Standard & Poor’s–was during the fall meeting of the National Association of Insurance Commissioners in National Harbor, Md.
The plan surfaced again in mid-October when regulators discussed the possibility of starting the new enterprise with the press. In an interview with National Underwriter, Roger Sevigny, New Hampshire insurance commissioner and president-elect of NAIC, said the idea was floated before the financial storm that included a government bailout of American International Group blew in.
Seivgny asserted that the plan was not an attempt to make the case for state insurance regulation over federal regulation of insurers. Rather, he explained, it was just an effort to offer any insurers and debt issuers another option to those currently available.
The rating agency envisioned by commissioners would be completely independent from the NAIC, a non-profit and could, if all goes right, be put before NAIC membership as early as the December meeting, he added.
For the 8 or so commissioners spearheading the effort to have NAIC hang out a ratings agency shingle, conversations with several rating agency analysts raised a number of points worth noting.
Among the considerations they advise commissioners to weigh are the extensive staff that will be needed to efficiently and accurately create a rating, the IT models that will need to be developed, and the time it will take to get an operation up and running, provided the Securities and Exchange Commission blesses the endeavor.
In the words of one ratings analyst after citing some of these hurdles, “bring it on.”
Another analyst wondered how the dual role of regulator and rating agency would work even if there was a regulatory moat separating the two roles. For instance, this analyst considered whether there would be subtle pressure on a company being regulated to subscribe to the rating services the NAIC had developed.
Funny, I’ve had several company representatives make very similar comments to me earlier this year about rating agencies and conferences that they sponsor.
