A place at the ratings table

The ratings system is one of the favourite debates of the reinsurance industry, and understandably so. As the flurry of ratings downgrades last year proved, the agencies are essential to the market and while there may be disagreements along the way, the system is tacitly acknowledged as being the best system available to monitor financial security in the sector.

At least that is the case for the mature markets such as the US, Western Europe, Bermuda and part of Asia and the Pacific. For emerging markets such as the Middle East and Eastern Europe, the need for a ratings system is more basic. Developing from state ownership and unregulated insurance markets, many countries in these regions are blinking in the bright light as they look to join the global insurance market.

S&P tops for Saudi Arabia

The Saudi Arabia Monetary Agency has, as part of a move to an open regulatory system, named Standard and Poor's as the international agency it wants its (re)insurers to be rated by. Whether in time the other global agencies will also get into the region remains to be seen but for now there is only one place to go to achieve the kind of recognition that will open doors across the region and the world.

During the course of the recent GAIF conference in Beirut, it was clear that while there was no shortage of interest from regional players in the international rating system, there are questions they want answered too. One of the most debated issues is that of sovereign ratings - which influences the rating potential of companies, depending on the sovereign rating of the country they are based in. The 10 new nations who have joined the European Union face similar issues - now being part of an economic alliance that contains many 'AAA' countries.

Debate continues

The rating debate also continues to question whether a large number of triple 'AAA' companies is even something that benefits the market. The management of capital has become the focus of attention for the rating agencies but the call across the industry - from the new markets in the Middle East to the established and thriving Bermuda - is for underwriting discipline and profit.

Markets such as the Middle East and Eastern Europe are offering new business opportunities to the wider market. But, for these regions to have the potential to be part of the global insurance sector, the rating system may have to find a way to offer a more sophisticated reflection of their risk-based capital adequacy.