One of the threats facing your clients' life insurance policies and annuity contracts could be rating analyst overload.
Officials at the Office of Credit Ratings, an arm of the U.S. Securities and Exchange Commission, talk about that danger in a new report on the state of nationally recognized statistical rating organizations, or NRSROs.
"Rating surveillance processes came under stress during COVID-19 due to rapidly changing information and declining performance in some sectors, which may have required additional surveillance reviews," SEC officials wrote in the new report.
One potential risk is the "possibility that NRSROs may have adjusted assumptions or streamlined surveillance processes without sufficient controls," as a result of the pandemic, and another potential risk is the "possibility that increased analyst workloads could result in failures to adhere to applicable surveillance policies and procedures," officials noted.
What It Means
COVID-19 could have done — and may still be doing — all sorts of harm to your clients' life and annuity arrangements, partly by increasing the workloads and stress levels of insurance company underwriters, asset managers, claim processors, rating analysts and other people associated with the insurance sector, or who have other jobs with a direct or indirect effect on insurance companies.
The NRSROs
NRSROs are SEC-registered firms that assess the health of financial institutions, corporate borrowers, asset-backed securities issuers, government securities issuers and insurers.
The firms are often referred to as "rating agencies."
The SEC publishes reports on the NRSRO sector every year in connection with the Credit Rating Agency Reform Act of 2006.
