The National Association of Insurance Commissioner is sharing too little information about a proposal that could change the way regulators treat residential mortgage-backed securities, according to the Center for Economic Justice.
The CEJ, Austin, Texas, says it has sent state insurance commissioners a letter urging them to reject an insurance proposal for changing the way RMBS are handled.
Today, insurers are supposed to use RMBS credit ratings when adjusting the value of RMBS holdings to reflect the riskiness of the holdings.
Insurers say the current system means that even a minor default can wipe out the risk-adjusted value of an RMBS, even if the RMBS is likely to pay out most of what an insurer had expected to receive. Insurers have asked the NAIC, Kansas City, Mo., to hire a firm to develop a new RMBS risk scoring system designed for use in adjusting the value of insurance assets for risk.
If the NAIC wants to change way securities, it should change the system for all securities, or all comparable types of securities, not just for RMBS, CEJ Executive Director Birny Birnbaum writes in the letter.
In the current proposal, securities backed by auto loans, credit card loans and commercial mortgages are not addressed, Birnbaum writes.
“The proposal is being rushed through the NAIC without necessary transparency,” Birnbaum adds.
Today, the NAIC has posted only a 1-page description of the proposal on its website, Birnbaum writes.
The description “does not describe the details of a complex proposal,” Birnbaum writes.
Regulators refer in an electronic mail message about a meeting concerning the proposal to “an industry study,” but the NAIC has not made a copy of the study available to the public, Birnbaum writes.
“Surely, the NAIC should not be adopting a major change in solvency regulation without public notice and public disclosure of the actual proposal and any studies supporting the proposal,” Birnbaum writes.