S&P’s upcoming second Capital Model RfC: Litmus 5-step guide to how the process will work. UPDATE 22nd February, 2023


S&P’s Request for Comment (“RfC”) process on its capital model is now 14 months old.  It created a huge response for the agency and, for some elements of it, significant controversy.

Uniquely, last May, the agency suspended the original RfC and has since been working on an updated version. At the time of writing S&P’s guidance for the release of that new version remains the first quarter of 2023.

In this note we update our 5-step guide to the process for rated (re)insurers, rating users and other stakeholders. In our companion blog also published on 22nd February 2023, we describe the background to, and status of, the RfC process and how S&P handles its ratings in the meantime.

5 step guide summary

Step 1: Publication of the new RfC and its comment period

Based on its current guidance S&P is likely to issue a new RfC during the remainder of Q1 2023. It will also define a timeline for external comments to be submitted. Litmus expects that timeline may well be longer than the 4 weeks that is common for rating methodology RfCs given the complexity of the subject matter and S&P’s likely goal to avoid the need for a further extension to the process (as it felt the need to do twice with the initial RfC).

Step 2: End of the RfC comment period and S&P’s review of the comments

S&P will review the RfC replies, making decisions on any changes to the original proposals and testing their impact before finalising the methodology and then gathering information from rated firms to decide which ratings will be on the list of those that it considers may be impacted once the new methodology is formally adopted (see Steps 3 and 4). 

Step 3: Launch Day (Litmus’ term). S&P formally adopts the new methodology.

The new model is formally adopted by the agency and published (reflecting any and all changes the RfC process has led S&P to make). In addition:  

  • The agency publishes an “Under Criteria Observation” (“UCO”) list of all ratings S&P believes may be impacted by the new methodology (although this published list will not show what that impact might be).
  • S&P advises companies on the UCO list that their rating(s) are now being reviewed and whether that context is potentially positive or negative for the rating. This is the first time the agency will have directly advised potentially impacted companies that their rating(s) will be reviewed due to the new methodology.
  • S&P publishes summarised details of the material RfC feedback received, highlighting where and why it made changes following consideration of the comments provided, and also explaining why and where comments received did not result in any changes to the proposed methodology.

Step 4: UCO rating list resolution and rating trigger reviews

Includes the formal process of communication with rated firms on the UCO list in the light of: the new model; other elements of how the agency applies its ratings framework that the model changes could impact given the firm’s own credit profile; and, of course, the potential rating impact itself.

Notwithstanding the prior information acquisition process in Step 2, this is likely to lead to further material exchanges of information, insight, and perspective between the agency and most UCO-listed firms.

We expect the agency to seek to resolve the status of most UCO listed ratings within weeks of the adoption of the new methodology.

Step 4 ends for each firm with UCO listed rating(s) with the agency publishing one of the following for each rating on the UCO list: an affirmation of the current rating and outlook; a changed rating and/or outlook; the rating being placed on CreditWatch or, if it is already on CreditWatch, whether it remains so.

A review process will also be underway across all other ratings covered by the methodology but not on the UCO list. This is to consider what S&P calls “rating triggers*” and whether the adoption of the new methodology changes those. Rating triggers in S&P terminology are the issues it highlights for each rating that would be most likely to lead to a rating change.  These do not mean the agency believes that change is itself likely to happen. Rather they are part of the agency’s process for being transparent about factors that could be the cause of a rating change were one to take place.

*The term “rating trigger” is sometimes used in policy wordings relating to permitted changes to the policy’s terms if a rating changes (e.g., a carrier’s rating being downgraded below some defined minimum level). The use of the same terminology is a coincidence.

Step 5:  The time period for remedial action to happen if it is to be credited in S&P’s UCO status resolution.

S&P’s ratings are forward-looking. For example, its base-case perspective on risk-adjusted capital strength typically reflects its forecast of its capital model outcomes and other factors for the year-end two years beyond the current year. Within the capital part of its analysis it is the ongoing, sustainable, capital position on which the agency focuses most.

The agency is, therefore, routinely considering how management actions, market conditions, performance etc. could impact that prospective capital position.

To the extent a firm’s rating is potentially negatively impacted by the adoption of the new methodology, management may choose to take remedial action to restore the position. Options might include raising capital, de-risking the investment portfolio, ceding more to reinsurers etc.

For these to be factored in by the agency at the time of the UCO resolution, however, they will need to be highly credible in the agency’s eyes. Expected timeframes will matter but may vary depending on the nature of the action.  A capital raise, for example, might well need to be deemed fully deliverable within a year.

Even if the agency considers the plan is both credible and restorative of the capital position it may still choose to act on the rating outlook or consider a CreditWatch if it feels there is enough uncertainty to warrant either of these options.


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