Capital Management Sciences has announced that "flux" risk scores will be provided within the latest version of its BondEdge portfolio analytics system.
These scores are required by the National Association of Insurance Commissioners because of the volatility associated with some mortgage-backed securities.
Los Angeles-based Capital Management Sciences specializes in developing fixed-income analytics software and offers consulting services to insurance companies, investment managers, commercial banks, and pension funds.
The scores will be used by the NAIC to evaluate the risk exposure in insurance company collaterized mortgage obligation holdings.
The scores will assign quantitative measures to each CMO holding to determine the degree of cash-flow uncertainty. The NAIC will obtain the scores and use them in connection with evaluation of yearend filings.
In order to help complete risk requirements, Capital Management Sciences worked with Invested Assets Working Group, an NAIC subcommittee.
"The NAIC was looking for an objective screening tool that identifies potential cash-flow variability in CMOs," said Teri Geske, a Capital Management Sciences consultant.
"These assets have to fund liability payouts for insurance companies," she noted. "If the CMO cash flows are so volatile that they are insufficient, a deficit could result."
Flux scores are based on a formula using the interest rate environment as it was in December 1993. The formula will be updated yearly.
Ms. Sullivan is a freelance writer based in New York.