Fitch has fired off a warning that an “A-” rating from AM Best for a newly set up reinsurer is most comparable with a “BBB” rating from Fitch Ratings, Moody’s or Standard & Poor’s, Fitch has warned.
The rating agency held a briefing in London just before this year’s Monte Carlo meeting to spell out what it sees as a source of flawed credit risk assumptions for investors.
“The assumption of equivalence could lead to a mis-estimation of credit risk. Our report highlights that IFS ratings are not like for like across the rating agencies,” said Chris Waterman, a managing director at Fitch Ratings in London.
He cited the rating agency’s July report on the topic, entitled “Not all insurer financial strength ratings are created equal”.
“We’re pleased to note the US National Association of Insurance Commissioners is taking the report seriously and looking into ratings equivalence across rating agencies, particularly at the IFS “A-” level,” said Waterman.
According to Fitch, such “A-” insurer financial strength ratings (IFSs) issued by its rival AM Best have only “limited compatibility” in four major areas, which the rating agency listed as: those for newly formed re/insurers; firms based in places with high country risks and low sovereign ratings; captive insurers; and for small insurers.
“We’re not saying it’s wrong, and we welcome the difference. The message from us is that management should be aware of the differences in rating approaches used by the rating agencies,” said Waterman.
For more on this story, make sure you read Day 1 (of 4) of Reactions’ Rendez-vous Reporter, out this Sunday.
Reactions will be reporting live from Monte Carlo and producing four dailies during the re/insurance industry’s annual meeting in Monte Carlo, which this year celebrates its sixtieth anniversary.