S&P to introduce runoff ratings system

NEW YORK--New York-based rating agency Standard & Poor's Corp. plans to introduce a new ratings system for runoff insurers and reinsurers later this year.

The new ratings criteria--expected to be formally launched within the next three months--will be used to gauge the likelihood of recovering principal from reinsurance companies. The ratings scale will mirror the one S&P currently uses for recovery ratings in the leveraged finance world, said Peter Hughes, a London-based vp for the agency.

On that scale, a 1+ rating denotes the highest expectation of full recovery of principal in the event of a default. A rating of 5 is the lowest, indicating a zero to 25% chance of recovery of principal.

The ratings system, which will apply to companies globally, will help bring transparency to the runoff market, Mr. Hughes said.

"We are interested to see what the reaction is," he said.