NU Online News Service, Nov. 18, 11:27 a.m. EST

The National Association of Insurance Commissioners announced it has selected global investment management firm PIMCO to reassess investments that insurers complained were 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 (NRSROs) for evaluating the 18,000 securities involved 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.

Newport Beach, Calif.-based PIMCO, a subsidiary of Allianz SE 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 RBC 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, NAIC said.

"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.

He added, "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."

The NAIC will hold 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.

Special Reports /

NAIC Selects PIMCO To Help Evaluate Insurers' RMBS Holdings

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