Amendment: Fitch: NAIC Reinsurance Proposal -- Big Affect on Collateral, Limited Affect on Ratings.CHICAGO -- (This is an amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. version of a press release issued earlier today; it updates the headline.) Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. today issued a report titled 'Impact of Proposed Changes in Collateral Requirements' that discusses its views on the National Association of Insurance Commissioners' (NAIC NAIC See National Association of Investors Corporation (NAIC). ) reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. task force's proposal to revamp re·vamp tr.v. re·vamped, re·vamp·ing, re·vamps 1. To patch up or restore; renovate. 2. To revise or reconstruct (a manuscript, for example). 3. To vamp (a shoe) anew. n. regulations governing reinsurers' collateral requirements and cedants' corresponding ability to take reinsurance credit in their statutory financial statements. Fitch fitch: see polecat. , which is following this issue closely, does not believe that individual (re)insurers' financial or competitive positions will be materially altered, and thus the agency does not expect to make a material number of ratings changes if the proposal is adopted in its current form. Fitch views the proposal as a credit neutral for primary insurers, a modest positive for unauthorized reinsurers and a modest negative for authorized au·thor·ize tr.v. au·thor·ized, au·thor·iz·ing, au·thor·iz·es 1. To grant authority or power to. 2. To give permission for; sanction: reinsurers. Fitch expects collateral levels to decline under the proposal as reinsurers pressure cedants to accept minimum collateral levels required to receive reinsurance credit in their statutory financial statements. In exchange, Fitch expects primary insurers to negotiate corresponding price reductions as the cost of funding collateral requirements declines and available capacity increases. Fitch's expectation is that this decline will occur over time since collateral requirements for reinsurance transactions entered into prior to the proposal's effective date will not change. The dollar amounts involved are significant. Collectively, U.S.-domiciled life and non-life (re)insurers reported US$605 billion of ceded reinsurance recoverables and US$218 billion of collateral on recoverables from unauthorized reinsurers at year-end 2005. Although Fitch expects that over time the proposal's implementation would reduce the collateral supporting primary insurers' reinsurance assets, the agency believes that the proposal's minimum collateral requirements are well in excess of historical default rates and thus provide more than adequate default protection. In the report, Fitch discusses its views on the proposals: --Probable effect on existing collateral levels; --Minimum required collateral levels relative to historical corporate bond defaults; --Credit implications for primary insurers and reinsurers. Fitch also provided comments on the proposal to the NAIC in January 2007, the content of which is included in Appendix C of the Special Report. Fitch's rating definitions and the terms of use Terms of Use are rules set up by the owner of an intellectual property or service to govern how they may be legally used. In many cases, terms of service are used as a contractual agreement between a company and users of a service they provide. of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental are also available from the 'Code of Conduct' section of this site. |
|
||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion