State insurance regulators may develop a new rating agency to gauge insurer financial strength that would offer all of the ratings currently provided by the four major rating firms already around.

“It is being researched now. We have barely started down the road,” said New Hampshire Insurance Commissioner Roger Sevigny, president-elect of the National Association of Insurance Commissioners.

Before the new project could even be initiated, questions that need to be answered, he noted, include: “Can we do it?” and “Would the SEC be likely to bless…it?”

The idea was discussed prior to the fall NAIC meeting last month, and then floated before the NAIC's executive committee, according to Mr. Sevigny. Subsequently, eight commissioners have been looking at the idea, and legal research is being conducted to determine whether the option is viable, he added.

Even before the financial crisis of the last month surfaced, the rating agency concept was raised, said Mr. Sevigny.

The current private rating firms–A.M. Best, Fitch, Moody's and Standard & Poor's–have been under scrutiny as to whether they failed to properly assess the financial strength of firms that have run into difficulties because of investments in subprime mortgages and related credit default swaps.

Mr. Sevigny said the rating firm proposal was not floated to make a case for state over federal regulation but to provide another ratings alternative.

Initial visions of how the new rating agency would work include complete independence from the NAIC–creating an entity that is a nonprofit affiliate to serve as a nationally recognized statistical rating organization.

The new entity would be similar to the Interstate Insurance Product Regulation Commission, according to Mr. Sevigny.

If the research supports advancing the project, it could conceivably be presented to the NAIC's executive committee in December, and then be ready to be filed with the U.S. Securities and Exchange Commission soon after, he added.

Deirdre Manna, vice president of industry, regulatory and political affairs at the Property Casualty Insurers Association of America, last week inquired if there was a specific budget number to fund the proposal.

While there is no specific line item, the cost would come from other regulatory modernization initiative budget lines, according to NAIC's chief financial and business strategy officer, Brady Kelley.

(Jim Connolly is a senior editor with NU's life and health insurance edition.)