The National Association of Insurance Commissioners (NAIC) has selected PIMCO as a third-party modeler to help state regulators determine the risk-based capital requirements for RMBS.
The new NAIC model is slated to produce expected security-level losses for roughly 18,000 RMBS owned by U.S. insurers at the end of 2009. Through this, insurers can map their holdings to designations set by the group and those designations accompanying risk-based capital requirements.
“Creating this new assessment process is an important step toward providing more transparency about these complex securities,” said Roger Sevigny, NAIC president and New Hampshire insurance commissioner. “This unique treatment of residential mortgage-backed securities distinguishes the NAIC as the only regulator to analyze these securities and require capital based upon the expected loss amount for a particular company.”
PIMCO will work with regulators to develop a set of price ranges for designations one through six, which will be used by insurers in their statutory financial statements and will calculate the risk-based capital charges for each specific security they own. These designations will apply only to year-end 2009 reporting.
A call by a valuation of securities task force, which is open to the public, is scheduled to take place on Nov. 30 to discuss the model assumptions, which is a critical component of the new methodology.
There will also be a task force briefing at the NAIC Winter National Meeting on Dec. 7 in San Francisco. The gathering's objective is to finalize designations and price ranges by yearend so companies can begin reporting under the appropriate designation in early 2010.