Though the insurance industry and the National Association of insurance Commissioners are far apart on many issues, the chances are good that the final version of a model investment law will contain limits on investments in mortgages mortgage-backed securities and MBS derivatives that can be perceived as reasonable by both sides and will not affect many companies.

"I expect that we will be able to cut a deal." said Suzy Marquard, vice president and investment counsel for the Prudential Insurance Co. of America. whose boss, General counsel James R. Gillen, chairs the industry advisory group on the model investment law.

A principal goal of the advisory committee, sad panel member Arthur Fliegelman, is to separate investments in residential and commercial real estate.

"Commercial and residential real estate are fundamentally different and shouldn't be aggregated," added Fliegelman, vice president of bond portfolio research for Salomon Brothers.

The NAIC, which aggregated commercial and residential real estate in an early draft of the law. with probably accommodate the industry on that point, said Carol A. Ostapchuk. deputy director of life and health insurance for the Florida Department of Insurance, who co-chairs the Model Investment Law Working Group of the NAIC.

But we are committed to quantitative limits," she warned.

Nonetheless. both Ostapchuk and Fliegelman agreed that the quantitative limits under discussion - and already the law in some states - probably would not affect the investment behavior of most insurance companies.

Florida, explained Ostapchuk, has a law that limits life and health insurance companies to placing 40% of their assets in mortgages, MBS or MBS derivatives. The limit is 10% for casualty insurers. In addition, only 3% of assets can be invested in any single project.

When the law was being debated, Ostapchuk said, her study of the portfolios of the more than 1,600 insurers licensed in Florida revealed only about 50 companies would exceed the limits slightly and two or three would be way over.

The NAIC Model Investment Law Working Group critiqued an industry draft of a model statute at a May 13-14 meeting in Chicago. The draft will be discuss more at the annual NAIC meeting June 7-11 in Washington, but a new draft probably won't be ready until midsummer, according to Marquard.

The current industry draft contains no quantitative limits on the amount of assets an insurer can invest in mortgages, MBS or MBS derivatives. An early NAIC draft aggregated commercial and residential real estate investments and limited total real estate investment 40% of assets for life and health companies and 10% for other insurers.

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