Standard & Poor's Ratings Services (S&P) recently announced that it is requesting comments on its proposed criteria for rating Investment Holding Companies (IHCs).

S&P has stated that its objectives for the Proposed Framework are to help market participants better understand the key risk drivers for IHCs, enhance the comparability and consistency of ratings, and improve transparency about how S&P assigns them.

As a responsible long term investor and forward looking institution, we agree with S&P’s objectives. However, we are of the view that these objectives are not advanced by the Proposed Framework.

Fundamentally, an individual company should be objectively credit-rated based on its underlying credit quality, using credit metrics across business and financial aspects. The business aspects of an IHC should include the resilience and credit quality of its portfolio, as well as the management and governance structure of the IHC. The financial aspects should include portfolio liquidity, cash flow, debt maturity profile, sources of liquidity, overall funding and capital structure, and ability to meet payment obligations as and when they fall due.

The Proposed Framework departs from the principle that credit rating should be based on the individual company’s underlying credit quality, and gives rise to serious concerns.

There are six key issues we address in our response, submitted on 30 January 2015. Download the full document here.

For further information on S&P’s ratings criteria updates, visit SPRatings.com.