The National Association of Insurance Commissioners (NAIC) could implement modifications to the to the way risk-based capital requirements are calculated on RMBS and CMBS positions held by U.S.-based insurance companies.  

On Monday, Barclays Capital said that the increase in capital requirements will primarily be concentrated in securities that are not currently classified as NAIC 1.  

The NAIC has not released specific detail on the proposed changes, but Barclays noted that documents used in an NAIC meeting held earlier this summer on the potential changes show that had the modified assumptions had been in place at the end of 2011, risk-based capital requirements on non-agencies held in insurance portfolios would have increased to 3.5% from 2.6% (to $4.3 billion from $3.2 billion of capital against $123.2 billion of RMBS carrying value).  

The capital requirements on CMBS positions would have increased to 1.3% from 0.9% (in dollar terms – to $2.1 billion from $1.4 billion of capital against $161.9 billion of CMBS carrying value).

"In non-agencies, most of the effect would have occurred on 'lower-quality securities' classified under NAIC levels 5 or 6, while the effect on CMBS would have occurred across all NAIC levels," analysts said.

According to the report, the modifications, which are under consideration by the NAIC’s Valuation of Securities Task Force, could go into effect at the end of this year. The task force is expected to reach a decision on the proposed changes by September.




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