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NAIC Eyes Shift On Rating Agencies.

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A rating agency panel ought to consider whether insurance regulators should use improved communications to reduce the risk that agency actions will disrupt insurers.

Staff members at the Securities Valuation Office, an arm of the National Association of Insurance Commissioners, Washington, have included that suggestion in a report given to members of the NAIC’s Rating Agency Working Group.

The staffers prepared the report, and a report summarizing public documents describing rating agency shortcomings, in response to concerns that inaccurate ratings may have contributed to the current market turmoil.

Creating new, formal lines of communication between the major rating agencies and regulators might be a way to improve management of situations in which changes in ratings could hurt the affected insurers, the NAIC staffers write.

The Rating Agency Working Group also could consider using Web links to help consumers get more information from the rating agencies and understand the limitations of the ratings, the staffers write.

Another approach might be to “increase regulatory content in capital markets decisions by routinely responding to rating agency pronouncement and thereby [provide] a better context for rating agency decisions,” the staffers write.

Possible strategies for reducing NAIC reliance on the rating agencies include replacing the agency ratings with NAIC Securities Valuation Office analytical processes, creating vehicles for monitoring and addressing the risk of rating shortcomings, and focusing on the market segments where rating shortcomings have occurred, the staffers write.

Using ratings in reinsurance regulatory modernization efforts is desirable, but the Rating Agency Working Group “should emphasize the NAIC and commissioner’s discretion to override the [rating agency] opinion within the modernization framework,” the staffers write.

One of the authors of the report is Chris Evangel, managing director of the SVO, and another is Robert Carcano, the SVO senior counsel. Dan Daveline, the assistant director of financial regulatory services, at the NAIC also worked on the report.

The SVO is an arm of the NAIC that assesses the value and credit quality of insurer-owned securities for insurance regulators.

The report discussing options for reducing use of rating agency ratings is available here.

The discussion of public documents concerning rating agency shortcomings is available here.


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