@Wally – Completely agree. This article is nothing more than the worship of hindsight. Ratings don’t “prove to be too high”. Anyone who says that is misusing ratings.
Ratings are a benchmark. I believe there was a stat by one of the rating agencies a few yrs ago that about every decade an A+ insurer becomes insolvent. If mgmt deceives the agencies and regulators this can happen. I used to work for one of the largest US insurers that was well rated, but was technically insolvent at the same time. During the financial crisis, likely a few of the most pristine reinsurers were at or near it statutorily. Rating agencies for the property markets have contributed to the over capitalization of the industry. Mgmt (particularly for public cos) will for self preservation reasons (and peculiar adherence to broker mkt pricing)will not consider a portfolio of reinsurance with varied ratings, as they might a diversified investment portfolio. Of course, with reinsurance being currently under priced there is no need to.
Is it me, or is there a paucity of details in this article? Maybe some real-life examples would have been nice.
@Wally – Completely agree. This article is nothing more than the worship of hindsight. Ratings don’t “prove to be too high”. Anyone who says that is misusing ratings.
Ratings are a benchmark. I believe there was a stat by one of the rating agencies a few yrs ago that about every decade an A+ insurer becomes insolvent. If mgmt deceives the agencies and regulators this can happen. I used to work for one of the largest US insurers that was well rated, but was technically insolvent at the same time. During the financial crisis, likely a few of the most pristine reinsurers were at or near it statutorily. Rating agencies for the property markets have contributed to the over capitalization of the industry. Mgmt (particularly for public cos) will for self preservation reasons (and peculiar adherence to broker mkt pricing)will not consider a portfolio of reinsurance with varied ratings, as they might a diversified investment portfolio. Of course, with reinsurance being currently under priced there is no need to.