Insurance Regulators and Rating Firms
Insurance Regulators and Rating Firms
Insurance regulators may not rely so heavily on rating firms from now on. They cite the shortcomings of using ratings to make decisions on giving out loans. Under the current system, a regulator will look at an insurance company’s rating according to institutions such as S&Ps and Moody’s and they will determine how much capital the insurance company will need to back a loan. The poorer a firm’s rating, the more capital they will need to back a certain sum of money loaned.
However, with the current drop in the value of investments, regulators want to be more lenient, allowing less capital to back each loan. Analysts also remark that it was unreliable ratings that was partially responsible for the current state of th financial markets; extremely high bond ratings were undeserved, and when their value dropped, so did the bank accounts of all the unwary investors. So in addition to letting the money flow, insurance regulators want address the problems with the rating system. In making this decision to deviate from the rating system, insurance regulators are moving a step in the right direction. They are helping to fix the problems that set off the financial meltdown and initiating reform measures.
Tags: insurance