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European insurers call for free access to credit ratings for internal/regulatory purposes

Written by Adam Cadle
05/08/2020

European insurers are calling for free access to credit ratings for internal and regulatory purposes.

In its response to a call for evidence by the European Securities and Markets Authority (ESMA), Insurance Europe said credit ratings are necessary to meet requirements under the Solvency II (SII) framework and are a "central and integral part" of an insurer’s approach towards risk management, its investment portfolios and strategy, but in several market segments, “instruments are almost exclusively rated by three main US-based CRAs in what could be considered as an oligopolistic market structure”.

“It would therefore be challenging for insurers to replicate CRA rating methodologies and research in a cost-effective way, Insurance Europe said. "This market concentration comes to the detriment of institutional investors who need CRA licencing for risk management and regulatory reasons."

To make the credit ratings published on CRA websites more useful and easier to access, the industry has suggested that firstly, CRA websites should state clearly that it is possible to use ratings by CRAs for internal and regulatory purposes without a license agreement.

“Intellectual property laws are an obstacle to this. In addition, there have been significant increases in the cost of these licences since the implementation of Solvency II,” Insurance Europe said.

Secondly, the insurance body said CRA websites should allow for export options with an automated and free-of-charge provision of rating data in a structured format.

“Process optimisation features are especially needed and valuable. For this reason, insurers rely on additional tools,” it added.

Thirdly, Insurance Europe said it would be helpful for CRAs to publish clear and transparent descriptions of their services and the associated costs. “There is currently a lack of commercial transparency surrounding the licensing process.”

To improve and make credit ratings in the European Rating Platform (ERP), the industry noted that third-party data feed providers would use ERP information if it were free and appropriate for use as a primary source of rating information.

“This is only possible if there is legal certainty that the ratings are freely available for internal and regulatory purposes, without a license agreement,” Insurance Europe underlined.

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