The mortgage assumptions used to derive risk-based capital (RBC) charges under the new 'RMBS Initiative' approach are similar to those used in Fitch Ratings' U.S. RMBS Recovery  Rating (RR) analysis, according to a study by Fitch's Insurance and RMBS groups of the National Association of Insurance Commissioners' (NAIC) RMBS Initiative' results.

Fitch said as a result it would need  to  make significant adjustments  to  insurers' reported RBC amounts as part of its insurance company rating analysis.

The analysis follows the implementation of the NAIC's new approach which is  effective  for  year-end  2009 statutory reporting purposes. The new approach  employs  a  financial  model  developed  by  PIMCO Advisory to calculate  RBC  amounts for RMBS bonds. The new methodology, referred to by  the  NAIC  as  the  RMBS  Initiative, utilizes an expected bond loss approach  and  factors  in  the  statutory  carrying  value  of the bond.

"A  key  component  of  Fitch's  analysis  of  insurance  companies is a consideration  of  capital  levels,'  said managing director Doug Meyer. "Working  in  conjunction  with  the  RMBS rating team, Fitch was able to simulate  the results of the NAIC's new RMBS RBC calculation methodology using  analysis Fitch currently employs in assigning Recovery Ratings to distressed RMBS bonds."

Fitch  analyzed  2,639 Fitch and non-Fitch rated RMBS bonds held by life insurance  companies  which had been recently assigned a RBC designation based  on  the  new  methodology. The par amount of the sample was $19.8 billion  and  was  a  little  over  10%  of total insurance company RMBS holdings.

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