The National Association of Insurance Commissioners ("NAIC") has adopted a resolution proposed by MetLife to reject ratings of certain securities held by Insurance Companies. Recent downgrades by Credit Rating Companies of residential mortgage-backed securities' ("RMBS") credit ratings have resulted in higher Capital or Reserves requirements for the Life and other Insurance Companies which hold these securities. The proposal adopted by the NAIC will cut the Credit Rating Companies loose from further rating of RMBS, and substitute a "third party" potentially more open, you might say, to rating RMBS higher than the Credit Ratings Companies have recently rated them. See Andrew Frye, "Insurers Win Regulator Relief on Home-Loan Securities (Update 3)" (Bloomberg.com, Friday, November 6, 2009).
After inducing a crisis of confidence in the accuracy of their credit ratings, and perhaps even in their competence in the field, Credit Rating Companies are finding it hard to stand up to proposals which have the effect of reducing large amounts of their existing business. If downgrades of RMBS credit ratings have this effect, and clearly they have had this effect, then the Credit Rating Companies face a problem which in many ways, they have made themselves: Either downgrade hopelessly inflated credit ratings on securitized garbage, and lose business, or leave the credit ratings inflated, and lose what little credibility the Credit Ratings Companies still enjoy.
There is a lot to be said in favor of honoring Fiduciary Duties, and not looking away from them. Even for just a little while. Let alone for a very long time.
The proposal is supported by the American Council of Life Insurers.
It is opposed by the Center for Economic Justice.
Please Read The Disclaimer.
Comments