Moody’s has produced a paper on how it will update its global rating methodology of insurance brokers and service companies.

The ratings agency is looking at how it rates senior debt of investment-grade insurers to help it estimate potential losses and recoveries on defaulted obligations.

Moody’s proposes to keep the same key rating factors, credit metrics, rating level guidelines and factor weightings as the existing methodology.

But it will now also include Moody’s loss given default (LGD) framework to guide rating decisions.

Moody’s VP Bruce Ballentine says the LGD rating actions could result in one or two-notch upgrades for senior secured debt to one or two-notch downgrades for subordinated obligations.

“In addition to incorporating the LGD framework, the proposed methodology would expand the rating scorecard to include Moody’s forward view of a firm's credit metrics,” he said.

“It would also clarify how an issuer’s operating environment might constrain its credit profile and therefore its rating.”

Moody’s is not expecting any changes to the 14 insurers it currently rates. These companies had about $US16 billion ($16.4 billion) of outstanding debt at December 31 last year.

Mr Ballentine says the proposed methodology aims to increase the transparency of its rating process.

“It will elucidate how we arrive at the senior debt ratings of investment-grade companies and the corporate family ratings of speculative-grade firms,” he said.

Insurers have until December 22 to comment on the paper.