FEEDBACK

Meanwhile, I recommend you read the book entitled This Time It's Different, by Reinhart and Rogoff. They are two top economists, one from Harvard and the other from Maryland. They provide mountains of evidence that demonstrates that the US is traveling a well-worn path towards financial trouble.

Mark S. Armstrong, CLU ChFC

Vice President, Life Insurance Services

ValMark Securities

Blaming S&P for the rating downgrade is less like having your AMEX card canceled because of an argument with your spouse than blaming a judge for the acts of a criminal. If anyone ran up huge debt on their Amex card, that card would long since have been canceled. Nowhere in your editorial do you fault the people directly responsible for this fiasco–the President and Congress. How about this for an alternative response by the President–"We don't agree with S&P and think they're wrong, but we need to do a better job of controlling taxpayer money we spend and our decision making process." Think we'll ever hear something like that? It's easier to shoot the messenger. There are a hell of a lot more lives negatively impacted by weak and ineffective government than by bad ratings.

Richard M. Harrison

Roseland, NJ

Your Editorial, "Somebody Has to Say It" very much caught my attention as it speaks directly to what I do for a living. Having worked as a credit analyst of the insurance industry for the past 20 years, I share your view that "ratings in general is a flawed business." But one also has to ask, if ratings in general are flawed, why have rating agencies continued to flourish? Or better put, why hasn't the free market found a better solution, rendering the ratings process obsolete or at least marginalizing it somewhat?

There are a couple of possible answers, but I believe the correct one is that while ratings are viewed as flawed by many, they are also considered the best solution for a wide range of constituencies who have neither the time, ability, or inclination to do their own financial research on underlying credits. The fact that ratings are written into many legal contracts (collateral triggers, E&O coverages, etc.) is both a reflection of this fact and a further factor strengthening ratings' staying power. And I can sympathize with many of the aforementioned constituencies, especially the insurance producers who often lack the background to independently verify an insurer's financial position, but have to depend on something.

So what to do? At my firm, we view financial insolvency as a process rather than an event. This is important, because ratings–in my opinion–are most often viewed in the context of an event. A rating is upgraded or downgraded and people react to this "action," as if something dramatic has occurred all at once. This is incorrect. In my long experience, financial deterioration almost always occurs over a period of time–i.e., is a process–that can be tracked if one simply looks on a regular basis at the underlying financials of a credit exposure. In short you have to meet process with process to conduct proper due diligence.

For many years, I have provided precisely this type of on-going oversight on many life, property & casualty, and medical health insurers each quarter. This analysis is targeted primarily at the statutory insurer level vs. the holding company (where rating agencies generally concentrate), which allows a producer to determine the relative financial strength of the actual issuing entity. Furthermore, we decided long ago to forego ratings and provide a scoring system that ranges from 0-100. This provides a more exact sense of relative financial strength vs. the broad letter categories used by rating agencies. A company's score is determined based on how a company performs within various tiers of risk (investment, operational, holding company support, and size and ratings) and is benchmarked against an industry composite. By refreshing these analyses on a quarterly basis, our clients are able to track the relative financial strength trends of a wide range of carriers to make the best decisions for their clients on a price/policy performance vs. risk of insolvency basis.

This is only one example of a due diligence process, but I am confident that any such process strengthens resolve by obviating surprises.

Ratings–as the public agencies themselves are quick to point out–are simply opinions. And as opinions, they serve a useful purpose. It is when ratings are taken as gospel truth that one runs into problems. By adopting a process to independently verify/question these opinions, one has a much surer sense of the relative financial strength of his or her insurance partners.

David Paul

Windsor, CT

Born This Way

I am catching up on some reading during this long weekend. Today I read the exchange in the letters to the editor (August 8 issue) related to the cover story on the gay community. Of course I was appalled by the comments submitted by Jim Anderson. I am not a bible scholar, but I am a Christian and I am of the belief that acceptance is more important and acceptance is not always easy. He talked about the Old Testament God that seems mean and I prefer the New Testament Jesus that challenges us to grow and to include, not exclude people. You did a great job of challenging his position in a polite way and he seemed to respect that.

Shortly after the issue on "Born This Way," I was approached by a local directory called Pink Spots (gaypinkspots.com), it is advertising for the gay community. I decided to advertise in part because of that issue. I want people to know that we are an office, an agency, that works to understand the challenges of a diverse group of people. We want to help those in the gay community to handle the insurance needs that they have. It is not new for us, but I decided to offer even more support by advertising. We will be listed in the next directory.

Colleen Callahan

Lafayette, CA

Kudos

Your publication National Underwriter passed through my desk before it gets to Larry, the broker I work with. It may sound odd, but I felt it was necessary to let you know how great your articles are. I couldn't tell you exactly which article of yours caught my attention first, but somehow I came to read one, and have been reading them ever since. I feel that life is too short not to acknowledge those around you who are doing something you feel is worth something. So, here I am reaching out to let you know how wonderful your writing is. You are doing something which few people today have the guts to do…you are communicating from the heart with honesty and emotion. Thought I would let you know you are reaching people and making them think…and feel.

Shannon Alexander

Chelmsford, MA