S&P Global Ratings has decided to withdraw a number of its controversial proposals for new criteria regarding the rating of insurance and reinsurance companies, after receiving negative feedback from the industry.
The rating agency has confirmed that it will withdraw its proposed approach for determining the rating inputs of bonds and loans, reinsurance counterparties, and deposits with credit institutions.
The decision follows a period of engagement with the market to evaluate its response to the new criteria, which was twice extended due to the high volume of comments and feedback that S&P received.
Many market participants felt the new rules proposed by S&P to be punitive and overly onerous, as they included capital charges for some investments and penalties for different types of reinsurance counterparty risk.
The Association of Bermuda Insurers and Reinsurers (ABIR) said last month that it was “strongly opposing” the new criteria, which it characterised as “disruptive” and an “overuse of market power.”
S&P says it will now consider alternatives for the withdrawn elements of the proposed criteria to assess the potential credit risk associated with these types of exposures.
“After we have had sufficient time to consider the high number of comments received, we intend to issue a subsequent RFC,” the rating agency said, referring to its request for comment. “This would incorporate any proposed alternative for the withdrawn elements, along with any other changes to what we originally proposed.”
“After this subsequent RFC is completed, we will finalize the criteria article in its entirety, consistent with our criteria development process,” it continued. “At present, we expect to finalize the criteria no sooner than the fourth quarter of this year, but we will provide updates to market participants if our expectations change. The current criteria remain in effect until such time as any new criteria are issued and made effective.”
S&P recently came under fire from the US Department of Justice, after its antitrust team penned a letter to the rating agency warning that it should “carefully consider” how proposed changes to the way it assesses the creditworthiness of bonds owned by insurance companies could harm competition.
The changes proposed by S&P would place more weight on the bonds within a firm’s and rank bonds rated exclusively by its competitors as less creditworthy, the DOJ noted.
A report by Litmus Analysis from late last year estimated that up to 10% of insurers and reinsurers rated by S&P were likely to be affected by the proposed changes to the rating agency’s capital model, and warned that “winners and losers are inevitable” if the changes were to be enacted.