The nation’s insurance regulators are looking into the role that credit rating agencies play in the insurance regulatory system.
The National Association of Insurance Commissioners (NAIC) said it will hold a public hearing on Sept. 24 to discuss the past and future roles of Nationally Recognized Statistical Ratings Organizations (NRSRO), which include A.M. Best Co., Moody’s Investor Service, Standard & Poor’s and Fitch Ratings.
Representatives of credit rating agencies, insurance companies and pension funds will be invited to testify, as will regulators, consumer representatives, leading academics and industry experts on the role of these credit rating agencies in the insurance regulatory system and what changes may be needed in light of the financial crisis.
Insurance companies hold nearly $3 trillion in rated bonds and the insurance industry constitutes the largest sector of the financial services industry to rely on credit ratings to supervise capital asset adequacy. Insurance regulators currently mandate the use of credit ratings to determine capital reserves and other regulatory requirements for insurance companies.
In February this year, the NAIC created a Rating Agency Working Group charged with evaluating the reliance on NRSRO ratings by state insurance regulators and the NAIC, the insurance industry and the insurance marketplace.
The Working Group, co-chaired by Acting New York Insurance Superintendent James J. Wrynn and Illinois Insurance Director Michael T. McRaith, will hold this hearing as part of that evaluation process.
Congress is also considering the role of credit rating agencies and the standards they must follow.
The role of credit rating firms is also before the courts. A recent court ruling raised questions about the First Amendment protections these rating firms have for the opinions they issue.
The NAIC said that during the hearing, the working group will gather information from panels addressing:
- The historical reliance of insurance regulators on ratings and the impact of this reliance;
- Issues concerning ratings, particularly related to structured securities and municipal bonds;
- Recent systemic remedies or procedural changes enacted by NRSROs;
- Recommendations and alternatives to NRSROs for prudential regulation.
Following the hearing, the working group will present a final report with recommendations for corrective action.
The public hearing will take place during the NAIC Fall National Meeting at the Gaylord Convention Center in National Harbor, Maryland.