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SVO To Respond To Guarantor Downgrades

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Insurers that hold bonds affected by bond insurer downgrades may get to use the bonds’ old ratings.

Chris Evangel, a representative for the Securities Valuation Office of the National Association of Insurance Commissioners, Kansas City, Mo., talked about the SVO’s response to bond insurer downgrades here at the summer meeting of the National Conference of Insurance Legislators, Troy, N.Y.

Starting July 1, companies can apply to the SVO to have bond holdings reviewed by the securities valuation arm of the NAIC, Evangel told state insurance legislators.

Companies concerned that bond holdings will lose the highest NAIC-1 designation because of cuts in the ratings of the bond insurers backing those issues can have the holdings reviewed for the standard $2,600 per issuer, a process that should take about 2 weeks, Evangel said.

Bonds are rated NAIC-1 to NAIC-6 by the SVO, with NAIC-1 the highest rating.

A drop in the rating affects a company’s risk-based capital charge, the amount of money that a company must set aside to help insure financial soundness.

Insurers hold $420 billion of the $2.5 trillion bonds on the market, and about $145 billion of the bonds have been wrapped by bond insurers, Evangel said.

The current turmoil in the financial markets has hurt the bond insurers.

Today, 3 of 10 bond insurers are AAA-rated but 4 of 10 are below investment grade, Evangel said.

Separately, Julie Gackenbach of Confrere Strategies, Washington, warned state legislators of potential changes in privacy laws that are under consideration.

A sample privacy notice under consideration at the behest of Congress, would create a “highly prescriptive notice” in form and content that does not distinguish between the nuances of the different financial services sectors, Gackenbach said.


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