Refusal by Regulators and Insurers to Changes S&P Rating Criteria

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Members of Congress, regulators, and insurers have expressed concern over proposed changes to the way Standard & Poor’s Global Ratings defines “available cash” in its rating criteria. S&P will no longer consider certain debt available to rate insurers’ financial strength or ability to pay claims.

The Association of Bermuda Insurers & Reinsurers (ABIR), described the measure as “disruptive” or “overuse of market strength” in an 18-page email to S&P. It requested comments by April 29 regarding its proposed methodology and assumptions to analyze the risk-based capital adequacy of reinsurers and insurers.

ABIR believes that S&P’s proposed changes would result in the abrupt removal of billions overnight that would otherwise be available to underwrite disaster risk – a sector where average insured losses have risen by nearly 700 percent over the 1980s.

The CEO of ABIR, John Huff, claimed in a news release that “the regulators see this debt as capital.”

“Carriers will receive less favorable conditions now if they need to restructure their debt.”

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As debt is replaced, financial leverage will rise, which may go against the steadiness that customers expect from a rating agency.

The U.S. House of Representatives and Senate have expressed similar concerns about S&P’s proposed change in its rating criteria. The U.S. House of Representatives and Senate have voiced similar concerns regarding S&P’s proposed changes to its rating criteria.

ABIR points to ambiguity in the timing for the rollout of the proposed changes. Before S&P indicates that the revisions will go into force, insurers and reinsurers won’t have time to adapt to the new debt treatment.

Huff states that there is no grandfathering or glide path. It’s just a rock. ”

The Bermuda insurance industry is asking the rating agency for a transition period to accommodate any changes and grandfather existing debt.

Huff states, “If there is a transition plan we can work within it.” But having this abrupt is very disruptive. Standard & Poor’s should add stability and not cause disruption.

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