NEW YORK–Voicing his concern about how rating agencies assess start-up companies, the head of such a new venture suggested that rating agency processes need to be clearer.
Donald Kramer, chairman and CEO of Bermuda-based Ariel Reinsurance, speaking at an industry meeting here, said he believes “rating agencies need to be more transparent and possibly come under some form of additional regulation to make sure they're transparent.”
Mr. Kramer made his comment responding to an audience question after delivering a keynote speech at the joint luncheon of the Association of Professional Insurance Women and the Insurance Brokers Association of the State of New York.
The question, regarding how he thinks rating agency processes should change, followed Mr. Kramer's earlier remarks that took issue with rating agencies and their treatment of start-ups like Ariel Re.
“To everyone in the business, I'm a senior citizen. To the rating agencies, I'm a 69-year old freshman,” he said.
Asserting that new companies have to adhere to “A-plus” standards to garner “A-minus” ratings, while existing companies meet lower requirements, he asked: “What if a senior modeler from RenaissanceRe joined me and was replaced by a two-year associate? Who's the newcomer?”
Later, going over the history of Bermuda companies and noting that RenRe has become “the standard by which catastrophe reinsurance companies are measured,” he noted that 19 days after RenRe started writing business in 1994, the Northridge earthquake hit, pounding the company with $90 million in losses on $150 million of capital.
In today's environment, “the rating agencies would have shut it down,” he said, noting that the company went on to raise $200 million in capital that year, experiencing no other major losses.
Later, Mr. Kramer complained that rating agencies have introduced subjective criteria, and the analysts employing these criteria are young and inexperienced due to high turnover at the rating firms.
Noting that one such inexperienced analyst recently said the Bermuda “Class of 2005″ has inferior management during a presentation at an insurance conference, Mr. Kramer asked, “What basis does she have to say that, given who the executives are in those companies?”
“When you introduce subjective criteria, you have to have experienced people applying them,” he said.
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