NAIC Mulls Creating New Rating Agency

State insurance regulators may develop a new rating agency that would offer all of the ratings currently offered by the three major existing rating agencies.

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

Before the new project could even be initiated, questions that need to be answered include “'can we do it?' and 'would the SEC be likely to bless off on it?'” he noted.

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

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

The private rating firms have been under scrutiny for failing to properly assess the financial strength of firms that have run into difficulties because of their investments in subprime mortgages and credit default swaps.

Mr. Sevigny said the rating firm proposal was not floated to make a case for state regulation 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, an entity which is a nonprofit, affiliate, nationally recognized statistical rating organization. The new entity would be similar to the Interstate Insurance Product Regulation Commission, he said.

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