NAIC Saves Capital

January 6, 2010 by · Leave a Comment
Filed under: The Ratings System 

Well, they got it done.

The National Association of Insurance Commissioners saved an approximately $5B in industry capital by ignoring the NRSRO ratings and using a recognized 3rd party to evaluate mortgage backed securities. The NAIC understood that the rating only described the first dollar of loss, not the magnitude of loss, and that strict use of ratings would unnecessarily drain precious capital out of the industry at exactly when they could least afford it.

PIMCO was interviewed and hired,  and they subsequently evaluated thousands of CUSIPs to make the MBS valuations for the industry before year end. This independent, third party, global,  fixed income  institution was employed to make valuations impartially and consistently across the industry.

Three cheers in the New Year for the NAIC. This is a textbook example of regulators using market resources to make regulation fair, appropriate and realistic.

[$$] Insurance Rule Adds Up to $5 BillionWall Street Journal, January 4, 2010

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