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

|

The National Association of Insurance Commissioners announced ithas selected global investment management firm PIMCO to reassessinvestments that insurers complained were undervalued by majorrating firms.

|

PIMCO will serve as a third-party financial modeler so stateregulators can evaluate the residential mortgage-backed securities(RMBS) held by insurers to determine what the carriers' capitalreserves for those investments should be set at.

|

No details on the cost of the contract were contained in theannouncement.

|

The NAIC has held hearings and meetings to discuss becoming lessreliant on ratings from nationally recognized statistical ratingorganizations (NRSROs) for evaluating the 18,000 securitiesinvolved and recently approved a measure to search for athird-party modeler.

|

The American Council of Life Insurers called for a change inSeptember, arguing to the NAIC that current ratings by nationalrating organizations failed to distinguish between securities witha total loss and those projected for minor losses. The result, ACLIcontended, has been regulators' capital reserve requirements forinsurers skyrocketing as ratings on RMBS plummeted, particularlyfor life insurers.

|

Newport Beach, Calif.-based PIMCO, a subsidiary of Allianz SEwill work with regulators to develop a set of price ranges fordesignations one through six to be used by insurers in theirstatutory financial statements and to calculate the RBC charges foreach 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 beforeit developed a short list of 11 vendors.

|

"A deep-dive was performed on each short-listed vendor by NAICstaff and independent financial consulting firm Oliver Wyman," theNAIC related.

|

That list was then further whittled to four firms before a finaldecision was made, NAIC said.

|

"Creating this new assessment process is an important steptoward providing more transparency about these complex securities,"said Roger Sevigny, NAIC president and New Hampshire InsuranceCommissioner.

|

He added, "This unique treatment of residential mortgage-backedsecurities distinguishes the NAIC as the only regulator to analyzethese securities and require capital based upon the expected lossamount for a particular company."

|

The NAIC will hold a Valuation of Securities Task Force call onNov. 30 to discuss the model assumptions, and will also hold a taskforce briefing at the NAIC Winter National Meeting on Dec. 7 in SanFrancisco.

Want to continue reading?
Become a Free PropertyCasualty360 Digital Reader

  • All PropertyCasualty360.com news coverage, best practices, and in-depth analysis.
  • Educational webcasts, resources from industry leaders, and informative newsletters.
  • Other award-winning websites including BenefitsPRO.com and ThinkAdvisor.com.
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.