In a letter dated last Friday, the Justice Department's antitrust division stated that S&P, the world's largest credit ratings companyproposed ,'s methodology change could raise barriers for its competitors. The changes may have a negative impact on the credit ratings of insurance companies that invest in bonds that are not rated by S&P.
In the letter, antitrust chief Jonathan Kanter stated that the company should "carefully consider whether penalizing insurers that purchase securities rated by S&P's competitors has the potential to raise barriers to entry and expansion by competitors, insulate S&P from competition, or otherwise suppress competition from rival rating agencies." "Such actions could raise serious concerns that the Sherman Act has been – or will be – violated, necessitating further investigation."
S&P is the market leader in credit ratings, which financial firms and investors use to assess the risk of products, companies, and other entities. According to the Securities and Exchange Commission, S&P controlled roughly half of the market as of December 2020.
S&P proposed changing how it measures the creditworthiness of insurance companies for the first time in more than a decade late last year. The new method would place more emphasis on bonds in a company's investment portfolio and rank bonds rated solely by competitors as less creditworthy. In some cases, this would result in the bonds being demoted to junk status – or below investment grade.
Critics have claimed that the proposed change would put bond issuers under pressure to do more business with S&P, potentially devaluing the assets already held by insurers. The National Association of Insurance Commissioners, a standards organization for state and territory insurance commissioners in the United States, expressed its own concerns about the S&P methodology change in March, urging S&P to reconsider.
In a statement issued on Wednesday, S&P stated that it would carefully review and consider the DOJ's comment in its criteria development process, which it claims is focused on "analytical quality." According to S&P, its "policies and procedures provide a framework that allows our analysts to operate independently of commercial considerations and influence."