‘Too big to fail’ list could have long term rating implications

The long term rating implications for insurers named on the Financial Stability Board’s list of global systemically important insurers could be mixed, depending on how they respond to the new designation, according to rating agency Standard & Poor’s.

In order to meet the requirements of the designation, named firms may be required to hold more capital or may have to enhance the quality of their capital instruments.

In a statement about the impact of the list, Standard & Poor’s said both changes could be positive for ratings, though these changes could lead to a higher cost of capital, which is generally seen as negative for ratings.

In addition, the ratings agency reported that heightened regulatory scrutiny could also have positive or negative effects on ratings – positive in terms of early detection and avoidance of risk, and negative in terms of strategic constraints and regulatory burden.

This view contrasts with that of rating agency A.M. Best, which said that the company does not expect the ‘systemically important’ designation to impact credit ratings.