BY CLICKING ON “I AGREE”, I DECLARE I AM A WHOLESALE CLIENT AS DEFINED IN THE CORPORATIONS ACT 2001.
What is a Wholesale Client?
A person or entity is a “wholesale client” if they satisfy the requirements of section 761G of the Corporations Act.
This commonly includes a person or entity:
On May 9, 2023, S&P published a revised Request for Comment (RFC) which supersedes its initial RFC published in December 2021. The revised RFC incorporates changes to the 2021 RFC in response to external feedback received. S&P is requesting that interested market participants submit their written comments on the proposed criteria by July 14, 2023. S&P’s updated proposal simplifies its framework and will supersede ten previously released criteria articles. S&P estimates that the proposed criteria could lead to credit rating actions on about 10% of ratings in the insurance sector with the majority of rating changes estimated to be by one notch, with more upgrades than downgrades.
BlackRock’s Insurance Solutions team has reviewed S&P’s proposal and summarized some of the key takeaways below.
BBB-rated and High Yield (HY) debt charges tend to be treated more favorably than current in S&P’s updated capital framework, leading to enhanced capital efficiency and capital-adjusted returns relative to AA/A-rated paper. This could potentially lead some insurers to pursue down-in-quality rotations given the better capital-adjusted relative value.
Broadly equity charges (public and private) increase modestly while fixed income charges decrease.
Within fixed income, the most notable changes are Commercial Mortgage-Backed Securities (CMBS) charges, which benefit from the up-in-quality tilt of the index and removal of the uncertainty and dispersion of results from the current model, and infrastructure debt, which benefits from being classified as a Category 1 asset (senior secured).
Within risk assets, HY bonds and leveraged loans (senior secured) benefit under the proposed model’s lower capital charges. In addition, direct lending benefits largely due to its senior secured ranking while infrastructure equity charges are lower due to the revised proposal’s new stand-alone charge and differentiation from broader equity market investments.