Insurers and Regulators Challenge S&P's Proposed Rating Criteria Changes

Insurers and Regulators Challenge S&P's Proposed Rating Criteria Changes

Concerns Over S&P's Proposed Changes

Insurers, regulators, and members of Congress have expressed concern about proposed changes in how Standard & Poor’s Global Ratings defines “available capital” in its rating criteria. Specifically, S&P would no longer consider certain debt to be counted as available for purposes of rating insurers’ financial strength and ability to pay claims.

Impact on Catastrophe Risk Underwriting

The Association of Bermuda Insurers and Reinsurers (ABIR) described the measure as “disruptive” and an “overuse of market power” in an 18-page letter to S&P. ABIR believes that the proposed changes would lead to the sudden removal of billions of dollars overnight that otherwise would be available to underwrite catastrophe risk – a sector in which average insured losses have risen nearly 700 percent since the 1980s.

Call for a Transition Period

ABIR CEO John Huff argues that “This debt is viewed as capital by the regulators. If carriers are forced to restructure debt, they’ll get less favorable terms today. Any replacement debt will increase financial leverage, which is counter to the stability people seek from a rating agency.” Huff urges the rating agency to provide a transition period for any such changes, as well as grandfathering debt that already is in place.

In conclusion, while S&P's proposed changes aim to provide a more accurate assessment of insurers' financial strength, the abrupt implementation without a transition period could lead to significant disruptions in the industry. Insurers and regulators are calling for a more gradual approach to ensure stability and continuity in the market.

For readers, it's important to stay informed about such regulatory changes as they can significantly impact the financial health of insurance companies and, consequently, the stability of the insurance market. Keeping an eye on industry news and engaging with professional associations can provide valuable insights and help in making informed decisions.