CICA Dispute With S&P Heats Up

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By Caroline McDonald

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NU Online News Service, Sept. 10, 12:08 p.m.EST? The head of a captive insurers group raised thepossibility today that his members could choose to avoid Standard& Poor's ratings if the firm doesn't back off from a negativeassessment of the captive sector.

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Carl Modecki, president of Minneapolis-based Captive InsuranceCompanies Association, made his comments after Leo C. O'Neill,S&P's president, wrote the CICA executive to say he basicallysupported an S&P director's description of captive insurers as"a time bomb waiting to explode."

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Mr. Modecki had written Mr. O'Neill seeking a retraction afterthe quote by Don Watson, then Standard & Poor's managingdirector for insurance, appeared Aug. 1 in The Wall StreetJournal. Mr. Watson has since taken a position at ACE Ltd.[see NU, Aug. 12, p. 29].

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In response to Mr. Modecki's Aug. 1 letter, asking if he standsby the quote, Mr. O'Neill replied Aug. 12, "While the words Mr.Watson used could be considered controversial, the message in thecontext of the article?that single-parent captives andself-insurance introduce vulnerability to corporate incomestatements?is one that we believe to be true."

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Mr. O'Neill continued in the letter, a copy of which wassupplied to NU Online by CICA, that, "While we agree that themajority of existing captives are financially sound (we haveassigned secure-range financial strength ratings to several), thespecialist underwriting, pricing, and reserving skills required tosuccessfully create and manage a captive are substantial, and theabsence of them lead to serious vulnerabilities to suchcompanies."

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Mr. Modecki said Mr. O'Neill's response, "As far as I wasconcerned was a non-answer. It's like saying an airplane is anexplosion waiting to happen if you don't have a good pilot."

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Mr. Modecki said CICA has extended invitations to S&P andMoody's to attend its members-only meeting in New York on Oct.14.

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"CICA hopes to do a presentation with Moody's and S&P on howthey view and rate captives," Mr. Modecki said. "So far, theorganizations have not confirmed."

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Mr. Modecki said he didn't know whether the issue would beresolved at the October meeting, but "I would hope that we could atleast clarify the positions of the two organizations becauseS&P's comments are not very highly complimentary to the captiveindustry and, at the same time, Moody's is starting a captive."

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If the organizations are rating captives, Mr. Modecki explained,"it seems that we do a service to our members if we at least givethem a heads up. They have a choice on which group to rate them ifthey get rated; I would think they would prefer to be rated byMoody's, which has its own captive and hasn't said anythingderogatory about the product."

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Mr. Modecki said "there is probably a big distinction betweenthe way they [S&P and Moody's] view captives."

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The issue, he said, is "hot on the table" because S&P hasjust begun rating captives. "We're not aware of any that they'vegiven a poor rating to at the moment, and there just seems to be adifference of how one views captives."

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Whether the organizations will accept CICA's meeting invitationremains to be seen, he said. "All you can do is invite them. Ifthey don't show, you let the membership know they don't thinkenough of you to show."

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