S&P Puts Off Effort to Develop Tougher Life Insurer Grading System

The New S&P Standards

S&P Global posted a request for comments on the current insurance standards draft about five months ago.

The American Council of Life Insurers argued, on behalf of member insurers, that the investment default rate assumptions used in the stressed environment scenarios were too harsh; that the parent company debt limits in the proposal would have been punitive; and that the proposed rules for handling some types of assets, such as corporate-owned life insurance and federal income tax receivables, would have been too strict.

The ACLI has argued that poorly designed, overly conservative criteria could eliminate some popular, useful products, such as annuities, without doing much to improve risk management.

"It is imperative to weigh the benefits of such criteria against the potential cost to consumers who rely on long-duration products like annuities and life insurance to provide retirement security in societies that lack government-funded pension programs," the ACLI said.

The National Association of Insurance Commissioners objected to the idea of how S&P incorporated the NAIC Securities Valuation Office in the rating framework and argued that the SVO is different from a rating agency. The SVO helps regulators understand the credit quality of the bonds and other investments in regulated insurers' investment portfolios.

Reaction

Fitch welcomed S&P's decision to revamp the rating criteria update proposal.

"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," a company representative said. "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). 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."

Correction: An earlier version of this article gave an incorrect description of the NAIC's position on the S&P propose. The NAIC disagrees with the idea of equating the NAIC Securities Valuation Office with a rating agency.

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