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

What You Need to Know

Rating agencies have been working to improve their methods in response to the Great Recession.
One knock against the S&P proposal is that some rules could have been too harsh.
Another concern is that S&P could have favored investments it had rated over investments it had not rated.

S&P Global Ratings is backing away from a battle with regulators and life insurers over a grading system update.

The New York-based rating agency has been trying to adopt new, tougher insurer risk-based capital adequacy criteria, to look harder to see how well any given insurer might perform in dire circumstances.

S&P said Monday that it has decided to withdraw the controversial parts of the proposal, in response to feedback received during a comment period that ended April 29.

“We are considering alternatives for the withdrawn elements of the proposed criteria,” S&P said in an announcement about its decision.

S&P plans to consider the comments received so far, rewrite the proposal and ask for comments on the revision, S&P said.

“At present, we expect to finalize the criteria no sooner than the fourth quarter of this year,” S&P said.

What It Means

S&P will stick with its current approach for evaluating the soundness of insurers’ investments, at least for now.

The Graders

S&P Global, Moody’s Investors Service, Fitch Ratings, AM Best and other firms have been rating the financial strength of insurers, as well as bond issuers and other securities issuers, for decades in an effort to help investors understand the  torrents of securities flowing their way, and to help insurance buyers understand insurers.

S&P Global has been trying to develop new approaches to ratings since the 2007-2009 Great Recession, when investors, regulators and others assigned the rating agencies part of the blame for problems affecting mortgage-backed securities and the markets for mortgage-related derivatives.