New York state’s insurance regulator suggested Moody’s Investors Service should have its authorisation to rate insurers’ holdings scaled back after the firm declined to attend a public hearing set for next week.
“This is the thing that forces one to ask questions about the role that a company like that can play in our regulatory system,” Hampton Finer, deputy superintendent and chief economist at the New York Insurance Department, said yesterday in a phone interview. “We think there should be discussion about whether Moody’s will have its authorization status going forward or having it curtailed in some fashion.”
Finer said he may advocate that regulators throughout the country rely on Moody’s competitors to rate securities held by insurance companies. Moody’s could lose business if that that happens, he said. Insurers can hold certain securities without explicit regulatory approval if those investments are rated by an authorised firm.
Standard & Poor’s, Fitch Ratings and Dominion Bond Rating Service Ltd plan to meet next week with US state regulators on the role the firms play in grading the insurers’ fixed-income holdings, the National Association of Insurance Commissioners said in a statement posted on the web. Moody’s was invited and won’t attend, said Scott Holeman, a spokesman for the NAIC.
Thomas Lemmon, a spokesman for Moody’s, declined to immediately comment. Vanessa Sink, a spokeswoman for the NAIC, declined to discuss Finer’s remarks.
New York Insurance Superintendent James Wrynn and Michael McRaith of Illinois convened the meeting as heads of a group appointed by the NAIC to evaluate watchdogs’ reliance on the firms. US insurance companies hold about $3 trillion in rated bonds including corporate debt and mortgage-linked bonds.
Regulators use the firms’ ratings as they monitor insurer portfolios to make sure carriers have enough funds to pay claims on policies ranging from mortgage guarantees to earthquake protection.
Moody’s and S&P, both based in New York, have been criticized by investors and lawmakers including Senate Banking Committee Chairman Christopher Dodd, who has said the companies wrongly assigned top credit rankings to subprime-mortgage bonds before that market collapsed in 2007.
Standard & Poor’s spokesman David Wargin declined to comment, as did Kevin Duignan, a spokesman at Fitch, and Caroline Creighton, a spokeswoman at DBRS. Fitch is a unit of Paris-based Fimalac SA, S&P is a unit of McGraw-Hill Cos and Moody’s is a unit of Moody’s Corp.
The hearing is set for September 24 in Maryland. The Securities and Exchange Commission will also participate.
