Firms which can model expected losses on commercial mortgage-backed securities (CMBS) and residential mortgage-backed securities (RMBS) are being sought by the National Association of Insurance Commissioners (NAIC).
The association has released separate requests for proposals (RFP) for vendors to model about 6,000 CMBS and 24,500 RMBS.
This process will produce valuations for state insurance regulators to set risk-based capital for CMBS and RMBS owned by US insurance companies.
The NAIC originally opened up the business of modelling these securities to firms outside the traditional rating agencies in 2009 and 2010 (see InsuranceERM, 29 July 2010, NAIC seeks CMBS modeller to assess insurers' risk) and this latest move is consistent with the association's policy to submit third-party contracts to competitive rebidding periodically.
Beginning with year-end 2009 for RMBS and 2010 for CMBS, probability-weighted net present values have been produced under NAIC supervision by selected vendors (one for RMBS, another for CMBS) using proprietary financial models with defined analytical inputs approved by the NAIC valuation of securities task force of the financial condition committee.
The NAIC explained that each vendor provides it with a range of net present values for each security corresponding to each NAIC designation category. The reported NAIC designation for a security is then determined by the insurance company, based upon an NAIC proprietary formula.
Applicants for the modelling assignment must, according to the NAIC:
- Be a nationally recognised firm with a minimum of five years' experience in performing valuations of complex structured securities
- Have a methodology that can be quickly modified and implemented
- Have access to loan level details for the universe of CMBS and RMBS
- Have the data processing capability required to generate these valuations by mid-December of each year of the contract
- Have the capability to model new issues
Responses to the RFPs are due by 10 March 2015. Recommendations will be made to the NAIC executive committee for its consideration in mid-2015.
Companies:NAIC