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Insurers Fume at Proposal That May Crimp Private Investments

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(Bloomberg) — Representatives of the multitrillion-dollar insurance industry are hurling criticism at a proposal that could make it harder to invest in deals sold in fast-growing private markets that offer higher yields but often bring added risks.

The proposal by a unit of the National Association of Insurance Commissioners, a consortium of state regulators that sets standards for the industry, would allow the group to override credit ratings assigned to some deals, in turn affecting how much money insurance companies could allocate to those deals. The NAIC group says it’s necessary in part because more deals are being done in little-regulated private markets.

Money managers and other industry groups are staunchly opposed. The impacts are already being felt, they say, as some insurance firms place moratoriums on certain deals until there’s more clarity.

“The current NAIC proposals have already had a major market disruption as word of the impending proposal permeates all levels of the insurance industry,” according to a letter by Jacques de Saint Phalle, head of debt capital markets at Piper Sandler. His opinion was read aloud at a Monday meeting in Seattle to discuss the plan.

The proposal under discussion would allow the NAIC’s Securities Valuation Office to override the credit ratings assigned to deals in which its own risk assessment is three or more notches different than the one assigned by an official credit rating organization, such as Kroll Bond Rating Agency and Egan-Jones Ratings Co. As a result, an increasing number of insurance companies have instituted a moratorium on purchasing Kroll and Egan-Jones rated transactions in these markets, according to Piper Sandler.

“Egan-Jones has a leading market position in private debt in part as a result of our excellent performance,” said Eric Mandelbaum, deputy general counsel at Egan-Jones, in emailed comments. “In 2022 we only had one default (compared to 50+ implied by our rating levels) and it was a ‘soft’ default for a covenant violation (and not payment) and in 2020 no defaults.”

Representatives for the NAIC declined to comment. Kroll didn’t immediately respond to requests for comment.

Industry criticisms of the proposal center on the fact that the SVO, which has a far smaller staff than any of the national ratings companies, would effectively be assigning its own ratings in cases where it chose to do so. It isn’t itself a ratings firm and isn’t regulated like one, critics said.

“The NRSROs are subject to a robust regulatory regime and have transparent methodologies which are available on their website for investors,” Mandelbaum said, using an acronym to refer to the nationally recognized statistical rating organizations, which includes Egan-Jones.

The proposed change could have big implications for US insurance companies, which reported $8.2 trillion in total cash and invested assets at the end of 2022. They’re closely bound by rules that limit the size of their investments in riskier assets. If the credit ratings of some deals are rejected in place of lower ratings by the NAIC group, then it could limit participation from the industry.

The SVO says the policy is necessary in order to protect against too much reliance on traditionally assigned ratings, in part by bringing transparency to less-regulated private markets. Evidence of some the risks emerged in 2022, when a new regulatory requirement brought to light a number of examples in which deals executed in private markets received substantially different ratings from different credit graders, said Charles Therriault, the director of the SVO, at the meeting.

“We have observed growing and often material discrepancies between the ratings provided by competing NRSROs for the same security,” said Therriault. “The rating exceptions identified by the SVO to the task force only came about because of the requirement for increased regulatory transparency into these non-public transactions. Otherwise, the task force would continue to be completely blind to these issues.”

A decade of low interest rates has drawn many insurers away from traditional public markets toward non-traditional and private markets, increasing the need for careful assessments of risk, NAIC’s president and president-elect wrote recently in a letter to members of Congress who had objected to the proposed rule.

 

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Tesla shares soar more than 14% as Trump win is seen boosting Elon Musk’s electric vehicle company

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NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.

Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.

“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”

Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.

Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.

Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.

Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.

In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.

The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.

And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.

Tesla began selling the software, which is called “Full Self-Driving,” nine years ago. But there are doubts about its reliability.

The stock is now showing a 16.1% gain for the year after rising the past two days.

The Canadian Press. All rights reserved.

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S&P/TSX composite up more than 100 points, U.S. stock markets mixed

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TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.

The S&P/TSX composite index was up 103.40 points at 24,542.48.

In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.

The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.

The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.

The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.

This report by The Canadian Press was first published Oct. 16, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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S&P/TSX up more than 200 points, U.S. markets also higher

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TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.

The S&P/TSX composite index was up 205.86 points at 24,508.12.

In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.

The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.

The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.

The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.

This report by The Canadian Press was first published Oct. 11, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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