-

KBRA Releases Commentary on S&P’s Proposed Updates to Its Insurer Risk-Based Capital Adequacy Methodology and Assumptions

NEW YORK--(BUSINESS WIRE)--On December 6, 2021, S&P Global Ratings released a request for comment (RFC) on proposed updates to its Insurer Risk-Based Capital Adequacy Methodology and Assumptions. The RFC generated significant market controversy in regard to the treatment of non-S&P rated securities held by insurance companies. More specifically, (1) to the extent an insurance company holds a security rated by S&P, that rating will be taken at face value when S&P calculates the insurance company’s capital charge associated with such security; (2) if the security is rated by Moody’s and/or Fitch, the rating will be lowered one to three notches; and (3) if the security is rated by any other credit rating agency (CRA), the security will be notched down to as low as CCC, depending on asset class and country.

The S&P proposal notes it completed a mapping exercise for both Moody’s and Fitch, and the related downward notching for securities rated by these two agencies is the result of this mapping. S&P has publicly told the market it does not have enough data to perform a mapping exercise for all other CRAs. The public comment deadline is scheduled to close on April 29, 2022, following two extensions.

KBRA believes that the capital markets are best served by well informed and reasoned opinions, and that rating agencies are entitled to their views just as much as other market constituents. That said, S&P’s move would equate investment-grade securities with capital charges that are commensurate with deep speculative grade ratings which, in our opinion, is neither well informed nor well-reasoned.

A CCC rating is typically defined as a security that is determined to be near default and at substantial risk of loss. However, the very fact that S&P does not rate a security does not mean that such security is on the verge of default with limited recovery prospects. In this report, KBRA highlights the level of stress required to impair high IG-rated securities in certain selected sectors. Simple math suggests that attributing a CCC capital charge to investment-grade (IG) securities is generally not a fair assessment, especially for high IG categories, regardless of the sector.

Click here to view the report.

About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

Contacts

Brian Ford, CFA, Managing Director
Structured Finance Research
+1 (646) 731-2329
brian.ford@kbra.com

Media Inquiries

Kate Kennedy, Senior Managing Director
+1 (646) 731-2348
kate.kennedy@kbra.com

Business Development Contact

Caitlin Colvin, Managing Director
+1 (646) 731-2465
caitlin.colvin@kbra.com

KBRA

Details
Headquarters: New York City, New York
CEO: Jim Nadler
Employees: 400+
Organization: PRI

Release Versions

Contacts

Brian Ford, CFA, Managing Director
Structured Finance Research
+1 (646) 731-2329
brian.ford@kbra.com

Media Inquiries

Kate Kennedy, Senior Managing Director
+1 (646) 731-2348
kate.kennedy@kbra.com

Business Development Contact

Caitlin Colvin, Managing Director
+1 (646) 731-2465
caitlin.colvin@kbra.com

More News From KBRA

KBRA Assigns Preliminary Ratings to Deephaven Residential Mortgage Trust 2026-INV2 (DRMT 2026-INV2)

NEW YORK--(BUSINESS WIRE)--KBRA assigns preliminary ratings to 10 classes of mortgage-backed notes from Deephaven Residential Mortgage Trust 2026-INV2 (DRMT 2026-INV2). The DRMT 2026-INV2 mortgage loans are secured by first liens on non-owner occupied (NOO) investor properties. All the loans in the pool are exempt from the ATR/QM rule due to being originated for business purposes. As of the cut-off date, the pool comprises 1,130 primarily fixed-rate (99.4%) residential mortgage loans seasoned a...

KBRA Assigns AA- Rating to City of Austin, TX Airport System Revenue and Refunding Bonds, Series 2026A (Non-AMT) and Series 2026B (AMT); Affirms Rating for Outstanding Airport System Revenue Bonds

NEW YORK--(BUSINESS WIRE)--KBRA assigns a long-term rating of AA- to the City of Austin, TX Airport System Revenue and Refunding Bonds, Series 2026A (Non-AMT) and Airport System Revenue and Refunding Bonds, Series 2026B (AMT). KBRA additionally affirms the long-term rating of AA- for the City's outstanding Airport System Revenue Bonds. The rating Outlook is Stable. Key Credit Considerations The rating actions reflect the following key credit considerations: Credit Positives Established enplaned...

KBRA Assigns Preliminary Ratings to Pagaya AI Debt Grantor Trust 2026-2 & Pagaya AI Debt Trust 2026-2

NEW YORK--(BUSINESS WIRE)--KBRA assigns preliminary ratings to 15 classes of notes issued by Pagaya AI Debt Grantor Trust 2026-2 & Pagaya AI Debt Trust 2026-2 (collectively “PAID 2026-2”), an unsecured consumer loan ABS transaction. PAID 2026-2 has initial hard credit enhancement levels of 80.36% for the Class A-1 Notes to 4.03% for the Class F-2 Notes. Credit enhancement is comprised of overcollateralization, subordination (except for the Class F-2 Notes), cash reserve accounts funded at c...
Back to Newsroom