State regulators are getting closer to hiring an outside firm to reassess rating agency evaluations of 17,600 residential mortgage-backed securities, an official says.
The National Association of Insurance Commissioners, Kansas City, Mo., is preparing a request for proposals to reassess the RMBS, according to Hampton Finer, a New York deputy insurance superintendent.
The rating agencies have downgraded the RMBS as a result of the recent economic turmoil.
The American Council of Life Insurers, Washington, called for a new approach to assessing the RMBS in September. The ACLI says the current ratings by the “Nationally Recognized Statistical Rating Organizations” — such as Fitch, Moody’s and Standard & Poor’s — fail to distinguish between securities likely to produce a total loss and those likely to produce only minor losses.
By using the NRSRO ratings in risk-based capital calculations, the NAIC has set insurers’ reserve requirements too high, and the RMBS downgrades have increased the total RBC requirement for life and health insurers by $11 billion, the ACLI says.