Clearly, the biggest discussion item to surface on the second day of the summer meeting of the National Conference of Insurance Legislators here was the plan by state regulators to create a rating agency. In response to questions from state legislators, Roger Sevigny, president of the National Association of Insurance Commissioners, Kansas City, Mo., offered more details on the project. The NAIC has made it known that it was considering the creation of an agency, so that it not new. What is new is the confirmation that it would directly compete with rating agencies and some more details about how this new entity might come to be.
Sevigny says that a business and financial plan is being finalized by the NAIC and the next step will be to test the assumptions in that plan before advancing it through the organization’s process. The project would have to be self-funded, he explained.
New Mexico State Sen. Carroll Leavell, R-Jal, expressed concern that the NAIC “is taking a great deal on” and in doing so, would create a beauracracy. In response to a question about who would own and operate the new rating agency, Sevigny said that the rating agency would be a separate not-for-profit entity from the NAIC.
State Rep. George Keiser, R-Fargo, N.D., and NCOIL vice president, said that creating a new rating agency has “tremendous potential for a conflict of interest. I can’t imagine you putting all that work in this and not wanting to be part of it.”
“The SEC [Securities and Exchange Commission] has a great deal of interest in a non-profit competitor being out there,” added Susan Voss, NAIC vice president and Iowa insurance commissioner.
NCOIL’s Leavitt responded by asking if there was really a need for such an entity. Sevigny answered that regulators were very concerned with the ratings on American International Group last fall prior to the entity’s failure, noting that they did not reflect the company’s real situation.
State Rep. Bob Damron, D-Nicholasville, Ky., and NCOIL president-elect, said that in his capacity as an investment banker, he had found that the rating agencies could be really tough when rating new securities and that they are “not being given enough credit.”