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NAIC Seeks Mortgage Model

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The National Association of Insurance Commissioners (NAIC) is shopping for a model it can use to set capital requirements for commercial mortgage-backed securities (CMBS) holdings.

The NAIC, Kansas City, Mo., has put out a request for CMBS assessment proposals.

The financial crisis has spurred the NAIC to look for better ways to estimate how likely issuers of mortgage-backed securities are to default, how much the securities holders will end up recovering, and what the value of each security really is.

Insurers with domiciles in the United States have invested in about 7,500 CMBS, the NAIC estimates.

“The expected losses and resulting expected values will be determined using loan-level details and a principal loss model developed and maintained by the selected firm,” James Woody, a senior manager at the NAIC, writes in a letter introducing the request for proposal.

The NAIC will use the results of the modeling to assign designations to the CMBS, and insurers will use the designations when calculating the effects of specific CMBS on risk-based capital levels.

Applicants for the modeling job should be nationally recognized institutions with at least 5 years of experience with modeling and valuing CMBS and other complex structured securities, officials say.

The NAIC also wants applicants to have:

  • The capability to immediately assign qualified staff to the project and
    devote them on the project until it is completed.
  • A cash-flow waterfall engine and economic loss model that can be quickly
    modified and implemented to evaluate about 7,500 CMBS.
  • Access to loan-level details for CMBS.
  • The data processing capability required to generate valuations by
    early December.
  • Evidence of being financially sound.

Responses to the request for proposals are due Aug. 11.

The NAIC is holding a 1-hour teleconference for would-be bidders Aug. 4.



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