Committees & Activities

Rating Agency (E) Working Group
Financial Condition (E) Committee

2013 Charges

  1. Monitor the implementation of recommendations resulting from the NAIC’s evaluation of the reliance on nationally recognized statistical rating organization (NRSRO) ratings. Provide a status of the recommendations to the Financial Condition (E) Committee at each NAIC national meeting until the majority of the recommendations have been implemented or disposed.—Important
  2. Evaluate whether the creditworthiness of a state, municipality or other public entity should take into account the unprecedented financial burdens many public sector issuers face from aging populations, public pension liabilities, infrastructure needs and revenue instability caused by financial and economic dislocations.
    • The diminished market share of monoline bond insurers (less than 10% of new issues are guaranteed, down from about 50% before the 2008 financial crisis), renders the valuation and credit risk assessment of many municipal bonds more difficult. As a result, the credit quality of insurers’ municipal bond portfolio is more opaque, and might require a more frequent and detailed reporting. Heightened reporting levels will enhance transparency and provide regulators with information sufficient to assess the creditworthiness of the issuer. Many municipal bonds without the guarantee are not actively traded, which also reduces (if not eliminates) any pricing discovery and accuracy the bonds might have had when insured and more liquid. An alternative valuation method might need to be developed, as the NAIC methodology of matrix pricing using comparable bonds might have limitations due to the difficulty of establishing benchmarks, in particular for small municipal issuers.—Important
    • Given the impact on municipal finances from the possible protracted equity market downturn, from expected losses in the commercial real estate market, and from the continuing foreclosures in residential real estate market, the credit assessment of municipal bond portfolios should assess the risk of unfunded pension and employee/retiree healthcare liabilities, as the growth rate of many government programs (e.g., healthcare, childcare, aged home care) generally exceeds the growth of government revenues. Continuing municipal fiscal burdens and pressures, and unprecedented burdens resulting from the baby boomer generation, might necessitate alternative views and assessments of municipal creditworthiness. Recent municipal defaults in South Carolina, Pennsylvania and Nevada illustrate the sensitivity of this time. —Important
    • Regulators should evaluate development of a series of indicators/scales prepared for regulators as warning signs in municipal issues (especially those without strong general obligation support). These indicators could include: i) Liquidity, given the thin secondary market and overall reduced quality of many issues, liquidity is an increasing concern; ii) Sustainability (as CALPERS and others have raised) on long portfolios, given pension, other post-employment benefits (OPEB) and social service programs; iii) Municipal tax capacity, whether the government has sufficient taxing capacity and authority to satisfy current and prospective obligations, as opposed to neighboring or “competitive” taxing authorities; iv) Scrutinize the risk among variant life terms of debt; and v) Establishment of thresholds or milestones for reserve adjustments.—Important
  3. Establish a process to monitor and evaluate acceptable rating organization (ARO) activities—Important. A monitoring function would:
    • Provide information about product offerings and the direction of financial innovation.
    • Permit timely regulatory intervention to set regulatory treatment for risky securities differently than that suggested by their credit quality.
    • Promote, if not require, rating agency transparency of process, compensation, staff participation, and collateral underlying the security.
    • Determine the materiality of risks other than credit to financial solvency.
    • Monitor and assess the changes that the rating agencies are implementing, and whether ratings continue to correctly complement regulatory purposes.
  4. Examine the extent to which insurers rely on ratings instead of performing their own due diligence.—Important


Audio AUDIO FILES: Each audio file is 15-30 mins. in length unless othwise noted..

New York State Insurance Department, New York, New York

  • November 18, 2010, Rating Agency (E) Working Group Public Hearing:
    Assessing the Use of NRSRO Public Finance Ratings in Insurance Regulation

NOTE: Due to technical difficulties at the facility, there may be audio gaps between recordings (see meeting materials for available text.)

2009 Fall National Meeting Washington, DC

  • Sept. 24, 2009, Rating Agency (E) Working Group Public Hearing: Role of Rating agencies in State Insurance Regulation

NOTE: Due to technical difficulties at the facility, audio begins approximately 15 minutes after the session begins (see materials for available text).

  • MP3 Audio 1 (24 mins,11MB)- Through Birny Birnbaum
  • MP3 Audio 2 (39 mins, 18MB)- Eric Steigerwalt & Panel 1 Q&A
  • MP3 Audio 3 (63 mins, 30MB) - Panel 2-All Panelists
  • MP3 Audio 4 (60 mins, 28MB) - Most of Panel 2 Q&A
  • MP3 Audio 5 (57 mins, 27MB) - Remainder of Panel 2 Q&A, Mani Sabapathi through Matt Richardson
  • MP3 Audio 6 (68 mins, 32MB) - Heather Brilliant through Michael Macchiaroli & Panel 3 Q&A


Conference Call Calendar

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NOTICE OF PUBLIC HEARING: Assessing the Use of NRSRO Public Finance Ratings in Insurance Regulation
Thursday, November 18, 2010
11:00 a.m. to 4:00 p.m. ET

Go to the exposure draft index.
There are no exposure drafts at this time.
documents and resources
  1. SEC
  2. President's Working Group
  3. IOSCO
  4. Financial Stability Forum
  5. NAIC Staff Summary of Reports
  6. NAIC Staff Report-Use of Ratings
  7. Rating Agency WG Final Report
  8. Report As Adopted by E Committee
  9. Chris Evangel comments
  10. Assessing the Use of NRSRO Public Ratings in Insurance Regulation
  11. Met Life remarks

Written Materials Submitted for Nov. 18, 2009 Public Hearing-NRSRO Methodology/Policy on Monoline Insurers and the Difference Between the Corporate and Municipal Rating Methodology



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