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.