After receiving a number of concerned comments, S&P Global Ratings said it is withdrawing a proposal to change the way it assesses risk-based capital adequacy for insurers and reinsurers.
For the first time in more than 10 years S&P looked to change how it measures creditworthiness of insurance companies, and on Dec. 6 last year the rating agency published a request for comment. The agency twice extended the deadline for responses, it said.
“Given the nature of some of the concerns raised in comments that we have received, we have decided to withdraw the proposed approach for determining the rating inputs of bonds and loans, reinsurance counterparties, and deposits with credit institutions…We are considering alternatives for the withdrawn elements of the proposed criteria to assess the potential credit risk associated with these types of exposures,” S&P said in a statement.
S&P was accused of a “power grab,” because, among the changes, not only did it intend to put more weight on bonds in an insurer’s portfolio, but it would deem bonds rated by others as less creditworthy. Late last week, the U.S. Justice Department said a change “could raise significant concerns” under U.S. antitrust law because it could force bond issuers to do more business with S&P.
The National Association of Insurance Commissioners in March wrote Congress to express concerns and clear up “any misperception.”
S&P said it intends to issue another request for comment to incorporate any alternatives for the withdrawn proposal.
“We expect to finalize the criteria no sooner than the fourth quarter of this year, but we will provide updates to market participants if our expectations change. The current criteria remain in effect until such time as any new criteria are issued and made effective,” S&P said.
Fitch Ratings, which would have been affected by the ratings change, released a response. “We are pleased to see that S&P has implicitly admitted they had no basis for the proposed actions in insurance after resounding objections from the market and the Department of Justice to their proposal,” said a spokesperson with Fitch.
“We hope S&P will now ‘consider alternatives’ for the same types of practices they employ in rating local government investment pools (LGIPs) and that both S&P and Moody’s will similarly consider alternatives to their positions on collateralized loan obligations (CLOs),” the spokesperson added. “We believe it is about time that local governments and other investors are allowed to choose the securities they buy without anti-competitive pressure from S&P and Moody’s.”