Addressing the influence of credit rating agencies

Channels: Risk, Regulation

Companies: Foresters Friendly Society

People: Erik Vynckier

Credit ratings carry great importance in terms of regulations and the capital charge set out for investments, but the work they perform is worth questioning, says Erik Vynckier of Foresters Friendly Society.

At Insurance Asset Risk EMEA 2019 conference held in London on the 12 June, Vynckier will speak on a panel discussing how to create a regulatory and policy environment that supports long-term insurance.

Ahead of the conference and in discussion with Insurance Asset Risk Vynckier pointed to credit rating agencies’ influence when asked what regulatory changes beyond Solvency II he would like to see , to facilitate insurers’ investments.

Vynckier described one moment when he asked two agencies for a credit rating for the same private debt placement.

With one agency he went “through the moves,” as he puts it, and received a ‘BBB’ rating.

With the other agency he asked not simply for a ‘rubberstamp rating’, but for a thorough valuation of the risk - and received a B grade.

“There is a significant cost associated with these ratings, and a lot of implications of them, be it in terms of regulatory oversight or capital charges,” he said.

“But there are question marks on the quality of the work that is being performed.”


Sustainability and Solvency II

Vynckier said he was supportive generally of the consultation that the European Insurance and Occupational Pensions Authority (Eiopa) launched earlier this week on integrating sustainability into Solvency II, though he had not yet fully familiarised himself with the finer details.

Integrating sustainability into businesses practices is important, he said, but doing so through Pillar I – namely, associating lower or higher capital charges based on sustainability metrics - was impracticable, and would result in ‘green-washing’.

“This will only result in a numbers game,” he said.

Integrating sustainability through Pillar II - regulatory oversight - and risk management, as suggested by Eiopa, would yield greater result, he added.

Vynckier will discuss these topics as well as the Solvency II 2020 review at the Insurance Asset Risk EMEA 2019 conference in London on 12 June.

Amongst other topics, the conference will also showcase investment leaders discussing investment strategy in the context of emerging risk, expectations for the Solvency II 2020 review, and the opportunities of private markets in late cycle investing.