The National Association of Insurance Commissioners (NAIC) has chosen Blackrock Solutions to assist state regulators as they determine risk-based capital (RBC) requirements for the CMBS held by insurers.
Serving as the third-party financial modeler, Blackrock will provide help in the assessing over 7,000 CMBS holdings by U.S. insurance firms at the end of 2010, as measured in terms of unique Committee on Uniform Security Identification Procedures or CUSIPs.
Blackrock will be coordinating with the NAIC to develop expected losses for each CMBS CUSIP. This would let insurance firms to map their CMBS holdings to the appropriate RBC designation and accompanying solvency requirements.
The selection of Blackrock Solutions followed a review of 16 bids received by the NAIC in response to RFP #1403: Assessment of Commercial Mortgage-Backed Securities, which wasposted on the NAIC Web site on July 28.
The review was done by NAIC staff as well as independent financial consulting firm Oliver Wyman utilizing a process that is similar to last year's efforts that resulted in the selection of PIMCO as the third-party vendor chosen to assist in the RBC RMBS modeling.
The NAIC employed the same selection criteria used for that process to select a financial modeler for CMBS, which are sound methodology; ability to process a significant amount of data; policies and procedures in place to address potential conflicts of interest; and a cost-effective price.
"The RMBS assessment process was a very important and successful step in our analysis of expected losses and related risk-based capital requirements for the insurance industry in 2009," said Jane L. Cline, NAIC president and West Virginia insurance commissioner. "Expanding this examination to CMBS holdings further enhances our analysis for another 43% of the structured securities owned by the insurance industry. These assessments continue to distinguish and supplement the stringent capital requirements of NAIC and state insurance regulators, which are based upon the expected losses and RBC for a particular company."
Blackrock will be coordinating with insurance regulators to make a set of price ranges for NAIC designations one through six. These will apply to year-end 2010 statutory financial statements and will determine the RBC charges for each applicable security.
In terms of RMBS designations for year-end 2010, the NAIC will still have its relationship with PIMCO. The NAIC was pleased with lthe previous year's results and thinks that consistency of process is important as added classes of structured securities are modeled.
"We were very pleased with the results of the RMBS assessment and PIMCO's work in 2009 and look forward to benefiting from their continuing efforts this year," Cline said. "We anticipate similar success with the CMBS assessment with the support and expertise we expect to receive from Blackrock Solutions."
The NAIC will focus next on the development of macro-economic assumptions with which both Blackrock and PIMCO develop their models. The NAIC will also schedule public meetings to talk about these assumptions as well as other issues that are important to the designation process.
More details about CMBS and RMBS, will be available on the NAIC's structured securities page when the data becomes available.
