The National Association of Insurance Commissioners will take an in-depth look at the nation’s credit rating agencies, from their role in regulation in light of the current financial climate to a possible alternative to the groups.

The organization representing the nation’s top insurance regulators will hold a public hearing Sept. 24 at the Gaylord Convention Center in National Harbor, Md. The NAIC is inviting representatives from credit rating agencies, insurance companies and pension funds to testify along with state regulators, industry expert and others on the current role ratings play and possible changes given the national economy.

According to the NAIC, insurance companies hold nearly $3 trillion in rated bonds and the insurance industry constitutes the largest sector of the financial services industry to rely on credit ratings to supervise capital asset adequacy. Regulators rely heavily on the use of credit ratings to determine capital reserves and other regulatory requirements for insurers.

Michael T. McRaith

Chairing the hearing will be the heads of the NAIC’s Rating Agency Working Group, Acting New York Insurance Superintendent James J. Wrynn and Illinois Insurance Director Michael T. McRaith. The hearing will continue efforts by the working group that started in February on a comprehensive evaluation of the reliance by state regulators, the insurance industry, the NAIC and the marketplace on Nationally Recognized Statistical Ratings Organizations (NRSRO).

The NRSRO designation represents those credit rating agencies registered with the U.S. Securities and Exchange Commission. The SEC currently has 10 NRSROs: A.M. Best Co., DBRS Ltd., Egan-Jones Rating Company, Fitch Inc., Japan Credit Rating Agency, Ltd., LACE Financial Corp., Moody’s Investor Services, Rating and Investment Information, Inc., Realpoint and Standard & Poor’s Rating Services.

During the hearing, the working group will gather information including the historical reliance of regulators on ratings and that impact on the industry; issues concerning ratings, particularly relates to structured securities and municipal bonds; recent systemic remedies or procedural changes enacted by NRSROs; and recommendations and alternatives to NRSROs for “prudential regulation,” according to the NAIC.

The working group will develop and present a final report following the hearing, documenting the findings and any recommendations for corrective action available to the NAIC and its members, as well as recommendations to the federal government on NRSRO regulation.