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As state insurance regulators finalize a plan to reassess the values of some 18,000 nonagency RMBS held by life insurers, big players such as MetLife Inc. could gain the largest benefits in reduced risk-based capital charges.
The plan calls for Pacific Investment Management Co. LLC to run the securities through various modeling scenarios that assess their carrying value, the product of which regulators will use to map required 2009 risk-based capital levels. The PIMCO assessments will be used in lieu of ratings granted by the major credit rating agencies, which have seen a wave of downgrades in 2009.
According to instructions to the industry posted Nov. 27 by the NAIC, PIMCO will calculate an "intrinsic price" for each security that reflects its current credit loss expectations. These prices will represent the difference between the RMBS' remaining par value and its expected loss, defined as the net present value of principal losses discounted using the security's coupon rate.
The reassessment process must be completed by Dec. 31 and would be reflected in insurers' annual statements, due March 1, 2010.
According to SNL statutory insurance data, U.S. life and health insurers that file with the NAIC reported that they held $144.6 billion of RMBS at Dec. 31, 2008, including securities classified as defined or other multiclass residential mortgage-backed with the issuer type industrial and miscellaneous. Of that total, $126.9 billion, or roughly 2.79% of the industry's $4.549 trillion of net admitted assets, held a designation of NAIC-1,...