Close to 96% of the non-agency RMBS that were either traded/offered over the past month had a National Association of Insurance Commissioners (NAIC) 'NAIC 1' rating, according to a report from Amherst Securities Group (ASG).

Of the 629 CUSIPs that ASG looked at, 578 were 'NAIC 1'. Of those 'NAIC 1'-rated securities, only 113 are rated investment grade by all rating agencies that rated them, this includes Moody's Investors Service, Standard & Poor's and Fitch Ratings.

"If the old rating structure were in effect, then these securities would be rated 'NAIC 1' or 'NAIC 2',"analysts said. "The other 449 securities would be rated 'NAIC 3', 'NAIC 4', 'NAIC 5', or 'NAIC 6', with much higher capital charges. The NAIC charges on non-agency securities should spur insurance company demand for this sector."

Non-agency RMBS that are currently rated below investment grade by the approved rating organizations and that are expected to be rated 'NAIC 1' will likely play a more important part of the insurance company landscape in 2011, they said.

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