Witnesses Pan Raters

NATIONAL HARBOR, MD. – The National Association of Insurance Commissioners should reevaluate Securities Valuation Office reliance on rating agencies, witnesses said here today at an NAIC hearing.

The NAIC, Kansas City, Mo., should take a hard look at the rating agencies because the agencies’ poor performance helped cause the recent financial meltdown, according to New York Deputy Insurance Superintendent Michael Moriarty and Birny Birnbaum, executive director of the Center for Economic Justice, Austin, Texas.

Moriarty, Birnbaum and others were testifying at a day-long, 3-part hearing at the conclusion of the NAIC’s fall meeting.

The NAIC’s Rating Agency Working Group organized the meeting, which was chaired by Illinois Insurance Director Michael McRaith and co-chaired by New York Superintendent James Wrynn, to look at how insurance regulators came to rely on the rating agencies, what went wrong, and what to do in the future.

The SVO is an arm of the NAIC that helps insurance regulators analyze and monitor bonds, mortgage-backed securities and other investment instruments.

Earlier in this decade, the SVO responded to limits on its resources by trying to make more use of the ratings and valuations provided by third parties, such as rating agencies, Moriarty testified.

The SVO exempted insurer-owned securities rated by nationally recognized rating organizations from filing requirements, Moriarty said.

“The rationale at that time was fairly straightforward,” Moriarty said, noting that the rating agencies had a track record of reliability.

Today, however, reliance on the rating agencies should be reviewed in light of the events of the last few years, Moriarty said.

Birnbaum criticized regulators for “delegating authority to private enterprises.” He said consumer groups in general are troubled by the fact that regulators handed off a critical public role to rating agencies.