Is the time of credit rating in the insurance and social security field to come soon?
The effectual risk management is the difference between the successful and the unsuccessful business undertaking. In all fields. In the insurance field, however, it is of the most important
performance - the companies take the risks of others and if they work out the little or averagely probable of the improbable they win, otherwise they are driven into destruction failing all that
trusted in them. The consequences of a single failure can affect whole economic fields and even large territories of a the state.
The public responsibility the insurers and the old age provision companies carry and the harsh temper of the elements made even Europe consider the issue. Some ten years later, on June 10th 2007,
the project on the framework directive on Solvency II was published. And thus the common legislation aiming at modernisation of the requirements towards the insurance, reinsurance and old age
provision companies. The process will take long and the new legislation is expected to be introduced in 2012. 13 current directives will be replaced by new ones which will regulate the insurance,
life insurance and reinsurance field plus a solvency clause. The new system will follow the principles of the Lamfalussy procedure. The commissioner of Internal market and Services, Mr Charlie
McCreevy, called Solvency II an ambitious undertaking of thorough make-over of the way financial stability of the (re)insurance and old age provision companies is calculated.
The Solvency II calculations is very similar to the credit rating assessments made by the major rating agencies. The agencies, however, can correct their methods by focusing more on the risk
management inside the company and the work of the managers and the actuaries; some, like Standard and Poor's, are already doing it.
How is the business accepting these new regulations
The former European supervisory system in the field (based on the 13 directives) and known as Solvency I was designed in the 1970's. Many companies found it insufficient and several EU member
states develop programmes of their own and the companies based in these states commission ratings to agencies or their own models in order to manage risk successfully.
Solvency II has some ground to stand on as a CEA survey commissioned by EC, conducted in the summer of 2006, among 442 companies showed. 80% of the interviewed managers said that are already apply
risk management as the basis of management or are in process of changing their instrumentarium. Where the system is in operation its model resembles Solvency II, therefore the introduction of the
new regulations will actually unify the best practice of all companies.
On the Southeastern border everything is calm
The dialogue between the insurance and old age provision business is activating after the directive was published. Some actuaries tried to say that their are not mere calculators.
By far the companies are approaching credit ratings very conservatively. During the recent years, however, the ice between the companies and the new on the market rating agencies has been breaking.
One old age provision company and 4 of 36 insurance companies have had their business rated.
The Bulgarian Credit Rating Agency (BCRA)rated Doverie Pension Insurance Company in the end of 2004. In the beginning of November 2007 its rating was raised from BBB+ to A - (stable trend) and the
universal, professional and supplementary funds the companies manages retained their A rating. The credit rating agency monitors the business done by the companies and makes the rating changes, if
any, every 6 months.
Bulstrad Insurance and Reinsurance Company was the first insurance company to be rated, again in the end of 2004, when BCR gave local A- rating, which was confirmed in the middle of 2005 and in the
summer of 2006 was raised to A.
Allianz Bulgaria was given the same rating in September 2007. The subsidiaries of multinational companies are given lower rating as a rule. Therefore the subsidiaries of Allianz in Bulgaria should
be given rating A as Standard and Poor's gave rating AA to the head company in Munchen. Most experts, however, do not find the practice of transfered rating a good one.
Our company commissioned its rating to BACR, said the deputy CEO of Alllianz Bulgaria, Mr Maxim Sirakov. He also said that no Law requires the insurance companies to be rated, it is a question of
prestige. Soon, however, all companies will be obliged to be rated by a rating agency in compliance with Solvency II.
Lev Ins was the second insurance company to be given its rating - BB+ - in July 2006. The interesting fact is that in 2006 the company commissioned another rating to the National Credit Rating
Agency and in the beginning of November 2007 was given bgA3 which is 4 levels higher that the rating it was given by BCRA and defines the company as an investment company. It is very surprising how
such an increase is achieved in so short a time. What is more, both credit rating agency follow one and the same pattern - the one of Moody's.
Credit rating assesses the credit worthiness of the companies and is used to adjust insurance premiums, determine employment eligibility and establish the amount of a utility. On May 17th 2006 FSC
recognised BCRA as a listed licensed credit rating agency.
Mr Radoslav Stoyanov, Chairperson of NCRA, said that the lack of FSC licence does not mean the agency cannot take commissions from other institutions.
Rating cannot be bought but it has its price
And it is much of a price, if the commission is done by a world agency. That is one of the reasons why the companies are not in a haste. They do neither see much need to do so. In Bulgaria only the executor of public commissions is required to be rated. Credit rating, however, is one of the obligatory requirements for the successful development of the insurance market.
