Rating Agencies Revolt?
Well, that didn’t take long.
With the ink on President obama’s signature on the dodd-Frank bill still wet, the first reper-
cussions of the landmark legislation are becoming evident in the bond market.
the Wall Street Journal reported that a little-discussed provision in the broad-gauge bill was hav-
ing an immediate impact on financial services firms as the three major rating agencies began
refusing to allow their ratings to be used in documentation for new bond sales. “a.M. Best will
not consent to the use of its ratings in registration statements and related prospectuses,” the
oldwick, n.J.-based company said in a statement.
dodd-Frank rescinded Securities and exchange Commission Rule 436(g), which spared
credit-rating agencies the indignity of being from being treated as “experts” under the U.S. Se-
curities act. Why would rating agencies want to be relegated to amateur status? to stay out of
court. With the safe harbor provisions afforded under Rule 436(g) in place, agencies were able
to give their imprimatur with relative impunity. in its absence, rating agencies fear they can be
hauled in front of a judge by aggrieved investors.
Yet, with the role of triple-a-rated toxic assets in the financial crisis still fresh, many say the
rescission of Rule 436(g) is long overdue. Writing in Bnet.com, the CBS interactive Business
network, financial blogger alain Sherter summed it up. “the raters have exploited this safe
harbor for years,” Sherter wrote. “it allows them to pose as experts, like a doctor prescribing
medicine (take a “aaa” rating and call me in the morning), without accepting full legal respon-
sibility for their services. Critics have long pressed the SeC to drop 436(g), and—kudos to
Congress and the SeC—it’s finally happened.”
in the wake of the bill becoming law, rating agencies issued a flurry of statements explicating
their newfound recalcitrance, noting that in addition to greater legal exposure, the law will
hamper their ability to elicit certain information of a material, non-public nature from issuers.
indeed, considering the centrality of the rating agencies to the debt-issuing process, this impasse
has the potential to significantly alter the availability of bonds, a staple of insurers’ investment
not surprisingly, given their exposures, the agencies are now professing caution.
“a.M. Best is carefully examining its current practices in light of the new requirements in the
act and will explore ways to ensure that it can fully meet the needs of the marketplace while
effectively mitigating its risks under the new law,” the company said. “if necessary, a.M. Best
will take additional steps to mitigate any potential risks associated with the new law.”
insurers now need hope that the agencies’ efforts at risk mitigation don’t undermine their
550 W. Van Buren St., Ste. 1110 ll Chicago, il 60607 ll Fax: 312-566-0656
Email: email@example.com ll www.insurancenetworking.com
Editor-in-Chief Patricia Speer 312.777.1376
Editor Carrie Burns 312.777.1366
Senior Editors William kenealy 312.777.1372,
alex Vorro 312.777.1378
Contributors John dodge
Online Contributor lori Finkel
Art Director Mike Vella
Group Editorial Director John McCormick
SVP & Group Publisher Rob Whitaker 212.803.8844
Publisher holli gronset 847.428.0627
Business Development Manager Michael McCaffrey 646.271.9687
Sales Coordinator Michelle Vega 312.777.1361
Customer Service 800.221.1809
Reprint Services Joylyn Yaw 212.803.8368
Group Marketing Director edward hanasik 212.803.6572
of Audience Development george ortiz 212.803.8544
Executive Director of Manufacturing Stacy Ferrara 212.803.8293
Group Production Director elina Shnayder 212.803.8210
Associate Production Manager Maria Marcoff 212.803.8992
Distribution Manager Carmen Meledez 212.803.8827
BOARD OF ADVISERS
eric Bulis, SVP and CIO, SBLI USA Mutual Life
Ursuline Foley, SVP and CIO, XLRe at XL Capital
dick Mucci, Chairman and CEO of International, New York Life
dennis Mehmen, CIO,VP, Business Information Services,
Grinnell Mutual Reinsurance Co.
Mike Murray, VP of Finance, OneBeacon Insurance Co.
Michael Romano, SVP, Risk & Administrative Services, Highmark Inc.
anthony Sisti, Information Systems Director, Travelers
Jan tomlinson, Past EVP and International Field Operations Manager,
The Chubb Corp.
Chief Executive Officer douglas J. Manoni
Chief Financial Officer Richard antoneck
EVP & Managing Director Banking and Capital Markets karl elken
EVP & Managing Director Professional
Services and Technology Group Bruce Morris
EVP & Chief Content Officer david longobardi
SVP, Inside Sales and Technology adam Reinebach
SVP, Director of Operations & Technology Celie Baussan
Vice President, Finance Jamie Brokowsky
Senior Director, Human Resources Ying Wong