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News Analysis - Raters are tolerated but not loved.
(From Reinsurance)
Byline: Vic Wyman.
Imagine waking up and finding that the rating agencies had packed their bags and disappeared into the night.
Many rated companies would cheer at the news that the influential rating analysts would be heard no more, for no (re)insurer is happy with a low rating or a downgrade. The effects of the latter could include being shunned by buyers, being forced to cut premium rates and greater difficulty in attracting shareholders and borrowing capital.
However, the financial soundness and credit-worthiness ratings of (re)insurers are used throughout the industry as a convenient and cost-effective tool for assessing potential business. If there were no rating agencies someone else would have to do the analysis, says Chris Klein, head of counterparty risk at reinsurance broker Benfield: "Brokers would be even busier than they are now."
Mr Klein, who has a ratings background as a founding director of Ibca, which was taken over by the rating company Fitch, is clear what would happen if the agencies shut up shop. "Someone would fill the gap. One way or another it would be filled," he says.
You would be mad not to realise what a material effect the agencies can have, he says: "The rating agencies are powerful voices."
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