29 July 2010
Published in: Regulation - supervision
NAIC seeks CMBS modeller to assess insurers’ risk
The National Association of Insurance Commissioners (NAIC) is seeking a "qualified" financial modelling firm to model expected losses on about 7,500 commercial mortgage-backed securities (CMBS).
The model will be used to assess the risk of CMBS owned by US-domiciled insurance companies. 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.
The process will help the NAIC set the reserve factor that an insurer will employ to calculate the risk-based capital charge for a specific CMBS.
The move is another blow to the traditional rating agencies following the NAIC's decision last November to enlist the modelling capabilities of PIMCO, the biggest bond fund manager in the world, to help state regulators determine the risk-based capital requirements for the approximately 18,000 residential mortgage-backed securities (RMBS) owned by US insurers at the end of 2009 (IERM, 20 November 2009, Regulation/supervision, "NAIC chooses PIMCO to model RMBS").
According to Bloomberg, applying Pimco's forecasting to 2009 financial statements produced $7 billion in capital relief from regulators for the industry.
Firms bidding for the project must be nationally recognized, financially sound institutions with at least five years' experience in modelling and valuing complex structured securities, specifically CMBS. They should be able to produce valuations by early December 2010 and they must also have safeguards in place to avoid conflicts of interest.
The bidders have till 11 August to make their proposal. The successful firm is expected to be named in early September.