NU Online News Service, July 29, 1:52 p.m. EDT
The National Association of Insurance Commissioners (NAIC) is looking for a vendor to model expected insurer losses for commercial mortgage-backed securities (CMBS) in an effort to replicate the process it implemented last year for evaluating residential mortgage-backed securities (RMBS).
The NAIC said it has released a request for proposal (RFP) for a vendor to model expected losses on approximately 7,500 commercial mortgage-backed securities (CMBS) held by insurers as of Dec. 31, 2010. "This process will determine the NAIC designations utilized by insurance companies to calculate the solvency reserves required to cover their CMBS holdings," the NAIC said.
Last year, the American Council of Life Insurers (ACLI) called for a change in how the NAIC used national ratings organizations' data to evaluate insurer-held RMBS for the purpose of determining capital reserve requirements. ACLI said the rating agencies failed to distinguish between securities with a total loss and those projected for minor losses, resulting in skyrocketing capital requirements for insurers as ratings on RMBS plummeted.
The NAIC also held hearings and meetings throughout the year to discuss becoming less reliant on the rating agencies for evaluating the 18,000 RMBS. The group of regulators approved a measure to search for a third-party modeler, and in November 2009, selected global investment management firm PIMCO to reassess the investments.
Using PIMCO as a third-party modeler, the NAIC then developed its own system to determine risk-based capital requirements for the RMBS owned by U.S. insurers at the end of 2009.
Now the NAIC is looking to model CMBS held by insurers, and a recommendation to do so is expected to be approved by the NAIC Executive Committee/Plenary at the group's next meeting in August in Seattle.
Responses to the RFP are due by Aug. 11, 2010, the NAIC said. The group added that applicants must be a nationally recognized institution with at least five years of recent and contiguous experience in modeling CMBS, must have the capacity to assign qualified staff to the project until its completion, must have sufficient data processing capability to generate valuations by early December, and must have safeguards in place to avoid conflicts of interest.
The NAIC said it anticipates selecting a vendor by Sept. 3.
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