Recognizing that assessment of risk and capital adequacy is becoming more complex, insurance company rating agencies moved forward this year with development of updated models, standards and approaches--at times drawing fire from carrier executives for going too far. Indeed, there was so much abuse heaped on rating agencies at last months Annual Executive Conference for the Property-Casualty Industry in New York that one beleaguered representative from Fitch jokingly identified himself as "one of the official punching bags of the meeting.

The rating agencies are looking to make their systems more comprehensive, dynamic, flexible and reliably predictive in assessing a given carriers ability to withstand multiple stress factors in both their underwriting and investment portfolios.

Some industry leaders have bristled at the agencies for flexing their rating muscles, charging that carriers are being pushed in certain directions, such as diversification, only to satisfy the systems demands.

There were also complaints as to whether rating agencies have personnel with enough experience to execute the more complex assessments being proposed.

While conceding that the rating agencies mean well and are doing a "much improved job," William Berkley, chairman and CEO of W.R. Berkley Corp., said, "if you don't fit in one of their boxes, they think they have the right to tell you how to run your business. But you can't run your business just to fit into the boxes they want you to check. The only reason they do it that way is they lack the skilled people to take a broader view."

Dan Carmichael, president and CEO of Ohio Casualty Corp., added that "our biggest frustration [with rating agencies, except for Fitch] is seeing more turnover than at McDonalds. As soon as we train [an analyst] about our business, they're gone. It's hard to get inexperienced analysts to see us as individuals and how we're different from the standard models."

Still, like it or not, the rating agencies have upped the stakes, and carriers will have to adapt and play by their rules to stay in the game. Stay tuned!

Special Reports /

NU's Top 10, #9: Carriers Irked By Rating Agency Demands

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