The National Association of Insurance Commissioners has picked a major bond fund manager to help state regulators assess the riskiness of residential mortgage-backed securities.

The NAIC, Kansas City, has awarded an RMBS modeling contract to Pacific Investment Management Company L.L.C., Newport Beach, Calif.

When insurers calculate risk-based capital, they are supposed to adjust the value of securities to reflect the securities’ level of riskiness.

In the past, insurers have used ratings from the major rating agencies to adjust RMBS values for RBC calculation purposes. This year, insurers pressed the NAIC to use an alternative approach.

The rating agencies flunk RMBS when issuers default in any way, wiping out the entire RBC value of RMBS even when issuers seem likely to pay some or most of what they owe, insurers have argued.

The Consumer Federation of America, Washington, argued that the NAIC should apply any change in securities adjustment strategies to all types of securities, not simply RMBS, but the NAIC ended up agreeing with the insurers.

For a year, PIMCO will help the NAIC use a homegrown RMBS model to put insurer RMBS holdings into the NAIC’s own risk designation categories, officials say.

PIMCO, a unit of Allianz S.E., Munich, was one of more than 20 companies that responded to an NAIC request for proposals, NAIC officials report.

Oliver Wyman, a consulting firm unit of Marsh McLennan & Companies Inc., New York, helped the NAIC develop a short list of 11 vendors, then identify four finalists.

“PIMCO will work with regulators to develop a set of price ranges for designations 1 through 6 to be used by insurers in their statutory financial statements and to calculate the risk-based capital charges for each specific security they own,” officials say. “These designations will apply only to year-end 2009 reporting.”

The NAIC’s Valuation of Securities Task Force plans to hold a call Nov. 30 to discuss RMBS model assumptions.

The task force also will receive a briefing on the effort Dec. 7 in San Francisco, at the NAIC’s winter national meeting.

NAIC wants to have the designations and price ranges developed by the end of the year, so that insurers can start using them in early 2010.