Standard & Poor's has released further clarification on its criteria for rating hybrid capital issues to take account of the circumstances when the force of mandatory-deferral language in the hybrid capital issues of European insurers and reinsurers may be considered sufficiently reduced by offsetting mechanisms to allow gapping of two rather than three or more notches.
The article, "The ratings impact of ‘best endeavours' undertakings in hybrid capital issues with mandatory-deferral mechanisms," supplements an earlier criteria article, "Assigning ratings to hybrid capital issues," published 8 May 2006.
"This is an important matter for those European insurers and reinsurers whose hybrid capital issues now routinely include mandatory-deferral language," said credit analyst David Anthony. "What we are saying is that we shall look at every hybrid issue on its merits and can potentially envisage applying two- rather than three-notch gapping even to the ratings on mandatory-deferral hybrids, but only if the 'management intent' of the issuer is conducive to such treatment and if the mechanisms to offset forced deferral are extremely robust."
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