Put this one in the ‘Ripley’s Believe it Or Not’ file.
Apparently at the March NAIC meeting the SVO Initiatives Working Group was charged with examining how the Securities Valuation Office could be expanded into a nonprofit ratings agency. OK, stop reading and go back and read that last sentence again.
Could the SVO become a true rating agency? Can you teach fish to swim?
Everyone knows that simply using the credit ratings published by the existing NRSROs for bonds, etc, has been a huge problem….and that the NRSRO economic model MUST change either by market forces or fiat. That’s why we are constantly asking investment managers for their independent assessment of credit.
However, the SVO as a guide for credit ratings? Virtually everyone on the investment side of the insurance industry knows the SVO is ill-staffed and too poorly organized to consider performing such a function, and that its main function is largely to serve as a security blanket for regulators.
Is this just another way for the NAIC to find job justification as the heavy hand of federal regulation descends upon the insurance industry in some form? Probably, and we have already seen it elsewhere, as the NAIC starts to reconsider the Model Investment Law.
Meanwhile, the Rating Agency Working Group was charged with examining the reliance on ratings from Nationally Recognized Statistical Rating Organizations (NRSRO) by the NAIC and insurers. This has the potential to move insurers from being able to use the provisionally exempt (PE) designation for ratings, and go back to the “kaching-kaching” of paying the SVO for merely referencing a translation table.
As tennis great John McEnroe yelled at many a regulator (umpire), “You Can’t Be Serious!” Alas, in this case, the NAIC, worried like crazy over Federal involvement, is undoubtedly very serious. Mr. Ripley may have to open a new wing at the museum.