Andrew Davidson & Co. Inc. (AD&Co) has made available RBC Monitor, an analytical approach the company says can be used to guide insurance companies in the assessment of the risk-based capital required to be held against residential mortgage-backed securities (RMBS).
RBC Monitor estimates the expected loss of an RMBS using AD&Co's LoanDynamics model, loan-level mortgage data and public National Association of Insurance Commissioners (NAIC) inputs for home prices and other assumptions. The expected loss for each RMBS, adjusted for carrying value, is be mapped to the risk categories that mirror the NAIC categories, AD&Co says.
AD&Co additionally applauds the NAIC for its adoption of an analytical approach, versus a ratings approach, to determine the amount of risk based capital insurance companies need to hold against RMBS holdings.
"Analytical measures of credit risk are more timely than ratings and can be used to focus on specific aspects of risk," says Andrew Davidson, AD&Co president. "We seek to provide our clients with independent objective measures of risk and value."
Last month, the NAIC selected PIMCO to help state regulators determine the risk-based capital requirements for RMBS. PIMCO will work with regulators to develop a set of price ranges for designations one through six to be used by insurers in their statutory financial statements and to calculate the risk-based capital charges for each specific security they own.
The Risk Based Capital Monitor, a CUSIP-based service, will enable insurance companies to track an estimate of required capital on a monthly or quarterly basis consistent with the approach utilized by the NAIC for year-end 2009, AD&Co says. The NAIC has not yet adopted a methodology for 2010, the company adds, saying its results cannot be used in place of the official NAIC categorizations.Â
SOURCE: Andrew Davidson & Co. Inc.