The way in which rating agencies incorporate the results of catastrophe models into their analyses puts pressure on insurance regulators to approve huge rate hikes for carriers, South Carolina's insurance director says.
“I have to tell you that the rating agencies have created a huge problem for regulators,” said Scott Richardson, speaking at a luncheon during Standard & Poor's recent Insurance-Linked Securities Conference. He was particularly perturbed about the impact of rating agency demands when it comes to catastrophe exposures.
Using the A.M. Best Company rating agency as an example, he said, “they came into one of our companies” in South Carolina and said that if the carrier wanted to write in catastrophe areas, it needed enough surplus to withstand two 100-year storms and one additional catastrophe event to retain its ratings.
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