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Credit insurers could challenge ratings agencies

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Credit insurers have what it takes to be fully-fledged financial ratings agencies and compete with existing ones, French central bank governor Christian Noyer said Wednesday in a press interview.

Groups that insure credit “have the know-how and experience, and they are even made to pay if they are wrong,” Noyer said told the German business daily Handelsblatt. “They could easily conquer the ratings market.” Credit insurers, like the German group Euler-Hermes, owned by insurance giant Allianz, or France’s Coface, owned by the Natixis group, sell companies insurance against client defaults and must thus accurately evaluate risks.

Noyer’s comments come as the major international ratings agencies located in the United States and Britain countries have been criticised for their role in the global financial crisis. Agencies on which much finance currently depends for information failed to assess the dangers of complex instruments that contributed to the sub-prime crisis and are allegedly too close to some of the companies they evaluate.

Groups like Standard and Poor’s, Moody’s and Fitch also issue ratings for the debt of sovereign countries, and have downgraded those for countries like Greece and Spain, fuelling concern about stability in the 16-nation eurozone. “We need clear rules for ratings agencies,” Noyer said, such as a ban on using the same scale for both complex financial instruments and classic investments such as sovereign bonds.

He also warned about allowing agencies to offer advisory services to the same companies they are rating. Further, the timing of agency decisions and their communication to the public should come under closer control, Noyer said.

FRANKFURT, June 2, 2010 (AFP)