Insurance companies will be less likely to buy CMBS AMs and yieldier dupers at a premium.
This is because these securities might be capped at book prices at around par under the recently revised National Association of Insurance Commisioners (NAIC) capital treatment requirements, said Scott Buchta, head of investment strategy at Braver Stern Securities.
NAIC last year selected Blackrock Solutions to assist state regulators in determining risk-based capital (RBC) requirements for the CMBS held by insurers.
Blackrock assessed over 7,000 CMBS holdings by U.S. insurance firms at the end of last year and, together with the NAIC, developed expected losses for CMBS holdings. This allowed insurance companies to map their CMBS holdings to the appropriate RBC designation and accompanying solvency requirements.
As a result of these present value marks determined by Blackrock, Buchta said it is likely that the CMBS market will see a pick-up in trading at the 'AA'/'A' level, "with insurance companies choosing to sell assets where the market value is greater than the NAIC value and retaining bonds (with a mark down) where the opposite is true."
"We have seen selling of dupers that are expected to take losses based on this logic in the past week," Buchta wrote in a report released today.