Rating Agency (E) Working Group
Rating Agency (E) Working Group Page
Joint Executive (EX) / Plenary Committee Summary Report
Winter 2009 Meeting Summaries Index

The Rating Agency (E) Working Group met Dec. 6, 2009. During this meeting, the Working Group:

• Discussed a proposed final draft report previously released for a comment period ending Dec. 31, 2009. The report, addressed to the Financial Condition (E) Committee, presents the Working Group’s findings, conclusions and recommendations in fulfillment of its charges. The report recommends that the NAIC:

• Modify the current policy of exclusive and uniform reliance on credit ratings by customizing how credit ratings are used to the specific regulatory use or asset class; i.e., corporate, municipal, structured securities and derivatives.

• Replace the use of credit ratings in the regulation of structured securities with alternative analytical risk assessment tools, perhaps including an expansion of SVO capabilities and responsibilities in this area.

• Expand the use of risk assessment tools for regulators, to include an expansion of the role of the SVO in creating and managing those tools;

• Replace or modernize the existing risk-based capital (RBC) formula and process. This is perhaps most urgent for structured securities, which have unique volatility and market risk characteristics not captured by the current RBC process (which relies on corporate historical default statistics).

• Assign the SVO responsibility — and provide the necessary resources — to monitor rating agencies’ activity and alert state insurance regulators to the need for regulatory intervention when rated instruments incorporate risk that might not be captured by the existing regulatory framework. 

• Work with federal regulators and others to require rating agencies to make appropriate structural reforms.

• More frequently reconsider whether the NAIC continues to require the services of credit rating agencies that have been identified as vendors of such services on the NAIC Acceptable Rating Organization (ARO) List.

• The draft report was released for exposure, with comments due Jan. 6, 2010. The Working Group will hold a public conference call in January to discuss the comments, with the objective of presenting a final report to the Financial Condition (E) Committee before the 2010 Spring National Meeting.

• Adopted minutes from meetings held Nov. 18 and Sept. 24.