S&P may expand scope of counterparty rating criteria to include cat bonds

How counterparty ratings affect the rating of catastrophe bond notes could change if Standard & Poor’s decides to expand the scope of its counterparty criteria to include corporate issues with structured finance characteristics such as catastrophe bonds.

The ratings agency has requested comments on its proposal to extend the application of its structured finance counterparty rating methodology to corporate and government ratings. The proposal is to apply its counterparty replacement framework and the link between the rating on a security and the rating on a counterparty to certain structured finance issuances.

Standard & Poor’s are asking for feedback on the proposal and one of the specific questions they want input on is whether the proposed criteria are appropriate with respect to ‘insurance catastrophe issues’.

What do you think? To outsiders it would seem sensible to link the ratings of securities with the counterparties involved, particularly the collateral holding counterparties, but it’s also easy to see reasons that market participants may not be so keen (any increased requirement for diligence tends to receive some negative feedback).

You can read S&P’s request for comments release here.