"The way I think about it" is that today "you have a dual system of regulation," he said, speaking at yesterday's Standard & Poor's conference here.

Unfortunately, Mr. Ayer said, while rating agencies are handling much of the solvency portion of the dual system, each rating firm has its own model of capital adequacy, complicating matters for insurers. "Capital redundancy for one [rating organization] is capital adequacy for another," Mr. Ayer said.

At a later session, Dominic Frederico, president and chief operating officer of ACE Limited, blasted a particular component of raters' capital adequacy models, noting that today's industry models are a factor of premiums, which give a measure of exposure, and reserves, used as a measure of existing liability.

"Premiums are the worst barometer of risk," said Mr. Frederico, who is also chair of ACE INA and ACE Financial Services. He noted that when insurers cut rates and expand terms and conditions, the premium values they record are less; and capital adequacy models using premium as a factor indicate that insurers need less capital to support their business.

"Exactly the opposite is true. I need more capital" in that soft market situation, he said.

Today, insurers are the beneficiaries of many factors that should support lower risk-based capital factors, he said. But because premiums are up (as a result of rate hikes), even though limits are shrinking and buyer retentions are moving up, the models say "I need to hold more capital. And that makes absolutely no sense," he said.

As for the more general issue of rating agencies taking over where regulators have left off in the area of solvency monitoring, Mr. Ayer said, "I think it [would] be better if they focused more on solvency" than on price and form, leaving the "very, very competitive" market to determine price.

Maurice Greenberg, chairman of American International Group in New York, agreed. "Let the market players set rates and form," Mr. Greenberg said. "Any states that have prior approval have the highest rates, because companies pull out. They can't respond fast enough." It's not until the states deal with the problem, by permitting more flexibility in pricing, that the market comes back in, he said.

Mark Bachmann, managing director and global practice leader for the financial services rating group within S&P, gave a scorecard of S&P rating actions at the start of the two-day conference. He said that during the past two-and-a-half years, S&P has downgraded 237 insurance groups, while upgrading only 55.

Mr. Bachmann noted also that more than 40 percent of all the S&P ratings for insurance companies in North America carry negative outlooks, and that 50 percent of European insurers' ratings carry negative outlooks.

On the p-c side alone, during the past year, John Iten, a director in S&P's North American insurance ratings practice, said that 30 groups were downgraded and there were no upgrades. Thirteen of the 30 downgrades pushed ratings two or more notches down on S&P's rating scale, he said.