The National Association of Insurance Commissioners says it will keep secret the names of bidders competing for a contract to assess the disputed value of insurers' mortgage-backed securities.
The NAIC said the contract to help evaluate the securities had gone to PIMCO, a global investment management firm based in Newport Beach, Calif.
However, the NAIC provided no financial details, and would not reveal what the winning bid was or the names of any other bidders, despite the objections of a major consumer group.
The NAIC's decision followed hearings and meetings to discuss becoming less reliant on ratings from nationally recognized statistical rating organizations for evaluating the 18,000 securities involved.
The NAIC said it received more than 20 responses to a request for proposals before it eventually selected PIMCO.
NAIC Communications Director Scott Holeman said it is standard procedure for the association to not release names of bidders during or after an RFP process. He said the policy is designed to protect the organizations that bid but that do not want their names revealed.
J. Robert Hunter, director of insurance for the Consumer Federation of America, said that when public entities contract out services, bidders are usually disclosed after the process concludes to those who inquire.
There may not be a press release sent out, but if one were to ask who the bidders were, that information is generally disclosed, according to Mr. Hunter, who has served in a public capacity before, including as Texas insurance commissioner.
With the NAIC, Mr. Hunter said CFA had to fight just to see the RFP, stating that he was initially told the RFP would remain private. After voicing objections, CFA was allowed to see it.
NU spoke with two public agencies, including the New York State Insurance Department, and both said when contracting out work, after the process is completed they will disclose bidders upon request.
Ron Klug, a representative for the New York Department, said once a contract is executed, the department sends a letter to the unsuccessful bidders letting them know they were not selected.
He said the department will not release a list of the bidders, but if someone inquires, the department will instruct them to file a Freedom of Information Law request. Then the department releases the letters sent to the unsuccessful bidders to the individual.
However, although the NAIC is made up of public officials--state insurance commissioners--Mr. Holeman explained that the association itself is not a public entity.
Mr. Hunter said the NAIC has problems with lack of process, and pointed to the association's original intent to not disclose the RFP as an example. "They just make it up as they go along," he said.
He said the association's "lack of process" is a reason why consumer groups oppose a U.S. Senate Finance Committee proposal to give the NAIC rule-making authority in drafting health insurance standards.
Consumer advocates announced their opposition to this measure in September.
In their statement, Kevin Lucia, a professor at Georgetown University and an NAIC-funded Consumer Representative, said that "any institution given the authority to promulgate final regulations which have the force of law--especially those that will determine health insurance benefits for millions of Americans--must be bound, at the very least, by all of the standards which federal government agencies are currently required to follow during the rule-making process."
As for the action that prompted concerns about lack of disclosure on the part of the NAIC, the association initiated the contract with PIMCO to reassess investments that insurers complained had been undervalued by major rating firms.
PIMCO will serve as a third-party financial modeler so state regulators can evaluate the residential mortgage-backed securities (RMBS) held by insurers to determine what the carriers' capital reserves for those investments should be set at.
No details on the cost of the contract were contained in the announcement.
The NAIC has held hearings and meetings to discuss becoming less reliant on ratings from nationally recognized statistical rating organizations for evaluating these securities, and recently approved a measure to search for a third-party modeler.
The American Council of Life Insurers called for a change in September, arguing to the NAIC that current ratings by national rating organizations failed to distinguish between securities with a total loss and those projected for minor losses.
The result, ACLI contended, has been regulators' capital reserve requirements for insurers skyrocketing as ratings on RMBS plummeted, particularly for life insurers.
PIMCO will work with regulators to develop a set of price ranges for designations one-through-six to be used by insurers in their statutory financial statements and to calculate the risk-based capital charges for each specific security they own, the NAIC said.
The designations will apply only to year-end 2009 reporting.
The NAIC said more than 20 RFP responses were evaluated before it developed a short list of 11 vendors.
"A deep-dive was performed on each short-listed vendor by NAIC staff and independent financial consulting firm Oliver Wyman," the NAIC related. That list was then further whittled to four firms before a final decision was made, the group said.
"Creating this new assessment process is an important step toward providing more transparency about these complex securities," said NAIC President Roger Sevigny, who is also New Hampshire's 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," he added.
The NAIC scheduled a Valuation of Securities Task Force call on Nov. 30 to discuss the model assumptions, and will also hold a task force briefing at the NAIC Winter National Meeting on Dec. 7 in San Francisco.
