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Life Health > Life Insurance

NAIC Panels Vote To Re-Grade Mortgage Securities

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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.

Yesterday, after a joint teleconference involving the NAIC’s Valuation of Securities Task Force and the NAIC’s Financial Condition Committee, regulators endorsed a decision to have the NAIC’s Securities Valuation Office go ahead with hiring a third-party firm to model RMBS losses.

The decision still must be approved by the NAIC’s executive committee and by the plenary, the body that represents all voting members of the NAIC. The approvals could be given by teleconference, and the votes could take place in a matter of a few “weeks or days,” Finer says.

During the teleconference, one life insurance representative said his firm had concerns about the assumptions that would be used in setting the new criteria.

A consumer representative questioned the decision to single out RMBS. By commissioning a reassessment of just one type of asset, the NAIC is providing capital relief to life insurers, letting them “hold less capital than is the current rule,” the rep said.

A representative for American International Group Inc., New York, countered that the NAIC action did not mean that insurers would have any more or less capital, “just that their exposure to this class of security would be measured more accurately.”


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