State Insurance Regulators Change Capital Requirements

The National Association of Insurance Commissioners (NAIC), an organization of state regulators, will require insurers to set aside more supporting capital for their investments in non-agency bonds backed by residential mortgages. The Wall Street Journal reports that the new requirement raises the total amount that insurers need to hold against mortgage-backed bonds by an estimated $600 million to $800 million.

The changes were initiated by a task force within the association that cited concerns over whether insurers would be able to cushion their losses from subprime mortgages and other risky loans if a recession occurs. The change, which was proposed by an NAIC task force and approved on Friday, increases the required capital up to approximately 3.2% of the carrying value of insurers' holdings of the bonds; it is currently approximately 2.7%.

The change is expected to go into effect when insurers compile their 2012 financial statements.


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