FOR IMMEDIATE RELEASE
NAIC WORKING GROUP RESPONDS TO U.S. SECURITIES AND EXCHANGE COMMISSION
RELEASE ON THE USE OF RATING AGENCIES AND CREDIT RATINGS
Response Emphasizes Need for Greater Transparency and Disclosure
NYS Insurance Department Superintendent Gregory V. Serio announced today that the Rating Agency Working Group (RTAWG), of the National Association of Insurance Commissioners (NAIC), has issued a response to the U.S. Securities and Exchange Commission (Commission) Concept Release: "Rating Agencies and the Use of Credit Ratings under the Federal Securities Laws," urging greater transparency and disclosure from rating agencies.
"The enhanced working relationship that is recommended will improve upon the activities of both the rating agencies and the regulators to proactively monitor and assess the financial condition of insurance companies," said Serio. "It is important to foster a more frank and open dialogue between the NAIC and the rating agencies because regulators, consumers and insurers are directly affected by the actions of the rating agencies."
The SECs Concept Release provides discussion on the possible elimination and/or increased regulation of the credit rating agencies (NRSROs). The RTAWG urges the Commission to continue with the NRSRO designation to enable the NAIC to have continued level of comfort about security ratings, emphasizing that the NRSROs have a good deal of influence in the market. In addition, for insurance regulators, NRSRO ratings have become part of the financial surveillance framework in place for insurers.
The RTAWG recommends improving the transparency of the NRSRO designation process through public announcements of NRSRO applications and public request for comments on the credibility and reliability of the applicants ratings. In addition, the RTAWG emphasizes the need to implement additional disclosures to address conflicts of interest between the rating agency and the company being rated, as well as to address ratings developed without the involvement of senior management of the company being rated.
"It is crucial that insurance regulators have a voice in the financial landscape that is being discussed in the Commissions Concept Release," said Serio. "As Chair of the NAICs Rating Agency Working Group, I anticipate that our response is an important step in the continued dialogue as these critical issues are decided."
The RTWAG has taken several actions since being re-activated in June 2002. At the National Meeting of the NAIC held in New York City in June this year, the RTAWG conducted a public forum with representatives from the Commission, Standard and Poor's, Fitch Ratings, Moody's Investors Service and Ward Group to address issues of common interest including the relationship between regulators and rating agencies and how improved communication can be effectuated. In the months preceding the public forum, members of the RTAWG had individual discussions about these concerns with representatives of each rating agency as well as the Commission.
The RTAWG is charged with establishing and maintaining productive relationships with the commercial rating agencies as the agencies carry out their activities. The RTAWG fosters an ongoing working relationship between rating agencies and insurance regulators with the primary objective being a better understanding between the parties of each others goals and activities.
The RTAWG is comprised of state insurance commissioners from the District of Columbia, New York, Pennsylvania, Texas, and Wisconsin. The RTAWG is chaired by Superintendent Gregory V. Serio of New York and is vice-chaired by Commissioner Lawrence H. Mirel of the District of Columbia.
Formed in 1871, the NAIC is a voluntary organization of the chief insurance regulatory officials of the 50 states of the United States of America, the District of Columbia, American Samoa, Guam, Puerto Rico and the Virgin Islands. The association's overriding objective is to assist state insurance regulators in protecting consumers and helping maintain the financial stability of the insurance industry by offering financial, actuarial, legal, computer, research, market conduct and economic expertise.