13 June 2018Analysis

Captives welcome a fresh approach to ratings

There is a growing appetite from captive owners for more choice and a different approach to ratings, according to executives from Kroll Bond Rating Agency, which launched its own methodology for rating captives in November 2017 and say they are dealing with a “healthy pipeline” of inquiries from captives.

They were speaking in a ‘Rapid Shorts’ session, which involved quick-fire sessions with panelists, at the annual  Bermuda Captive Conference, which is taking place at the Fairmont Southampton Hotel on Bermuda this week.

Tina Bukow, senior director, business development – insurance, at Kroll said that the rating agencies is working with a number of captives that have approached the rating agency to secure a rating. Some are seeking a second rating while others are start-up captives and have chosen to work with Kroll because they like the company’s approach, Bukow said.

“Some captives have said they want a second rating – a second pair of eyes on what they are doing; others are early stage captives that may struggle to get a rating with other agencies because they have no track record; others have approached us simply because they like our methodology,” Bukow said.

Kroll was founded in 2010 in the aftermath of the financial crisis with then mission statement of aiming to “restore trust in credit ratings by creating new standards for assessing risk and by offering accurate and transparent ratings”. It says it provides “an alternative solution by delivering timely and in-depth research across various sectors”.

Bukow stresses that it has no proprietary capital model and this approach fosters thorough financial analysis. She said that ratings are completely transparent, interactive and based on a company’s unique characteristics. It also has no rating caps, which means a captive can be rated higher than its parent company. Plus, because it provides corporate ratings it will seek to gain a complete understanding of both the captive and parent.

She adds that more captives are keen on exploring gaining a rating. Two driving forces on this are the fact that some can save a lot of money on fronting arrangements with a rating of a certain level; others are doing it driven by improvements in corporate governance.

“We have found that companies are very happy to have more choice and a rating agency that offers a fundamentally different approach,” she said. “They see it as a fresh approach – and it is – but on the other hand we are just using fundamental financial analysis, which is not new, it has been around forever, but that approach has certainly had a good response so far.”