S&P expects 10% of ratings in re/insurance sector to be affected by its new criteria

S&P Global Ratings has published a revised version of its proposed methodology for measuring the risk-based capital adequacy of re/insurers, noting that the new criteria could lead to credit rating actions on about 10% of ratings in the sector and affect capital and earnings assessments.

S&P Global RatingsThe rating agency is also requesting comments and feedback on it, adding that the revised request for comment (RFC) reflects extensive feedback received after the publication of a previous version on December 6, 2021.

According to S&P, the proposed criteria would apply globally to all insurers in the life, property & casualty, health, mortgage, trade credit, and title insurance and reinsurance sectors. They would also apply to assessing the asset-related risks of bond insurers.

The rating agency said it incorporated changes that improve our ability to differentiate risk, enhance the global consistency of our methodology, and improve the transparency and usability of its methodology.

“We believe that, based on our testing and assuming entities in scope of the criteria maintain their credit risk characteristics, the proposed criteria could lead to credit rating actions on about 10% of ratings in the insurance sector. The potential ratings impact is based on our testing assumptions,” S&P explained.

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“We estimate the majority of rating changes would be by one notch, with more upgrades than downgrades. We expect the proposals to have a more material impact on our capital and earnings assessment, with changes in this key rating factor for up to 30% of insurers.”

The rating agency added: “These score changes could affect up to 20% of stand-alone credit profiles. The lower potential impact on ratings compared with components of our ratings reflects the application of the insurance ratings framework, our group rating methodology, and sovereign rating constraints.”

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