S&P faces strife & pique on tightened capital qualifications

Ratings agency  S&P has raised hackles on the island of Bermuda, with an insurance lobby group vowing stiff opposition to plans to limit accounting treatment of senior debt.

Plans by  S&P to disallow senior debt as a form of available capital look “unduly onerous” and “disruptive” as well as out of steps with other rating agencies and regulators, the Bermuda insurance lobby group  ABIR has said.

S&P proposals to remove the capital qualification for senior debt leaves over a billion dollars in existing debt with little benefit to insurers who issued under the current  S&P system, the CEO of the  ABIR, John Huff (pictured), lamented.

Debt issued by Bermuda insurers clearly meets the  S&P definition of capital “available to absorb losses in the insurance business,” Huff contends, citing Bermuda regulatory treatment of capital layers and waterfalls.

“Existing securities were issued in good faith, taking into consideration established regulatory and rating criteria,” Huff said. Unwinding those deals once the capital ceases to count towards financial stability measures could prove costly.

“It’s an overuse of their market power,” Huff says of  S&P. “It will have a negative impact on ratings for the Bermuda market without any reasonable justification or market changes. It is clearly anti-competitive.”

The other key issue  ABIR points out is an ambiguous timeline and lack of a transition period for the rollout of the changes,  ABIR said of its submitted response to the  S&P proposal.

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