What was once suspected of being an effort to reduce holdings by insurance companies of mortgage-backed derivatives is about to cuhninate in a requirement to report specifically on how much of the securities individual insurers hold.
The National Association of Insurance Commissioners will begin requiring full disclosure of mortgage-backed derivatives on the annual statements of insurance companies beginning next year.
The NAIC's Invested Assets Working Group. meeting in Cincinnati. voted Sept. 21 to adopt the requirement. It was approved the next day by the Securities Valuation Office Task Force. Final approval by the NAIC's Blanks Committee is expected next month.
The disdosure requirement. plus adoption of a volatility measure for assets and liabilities. are definitely not intended to inhibit insurers' purchases of the derivatives. according to Larry Gorski. life actuary in the Illinois Department of Insurance and chairman of the Invested Assets Working Group.
The work of that group and a separate panel that is developing a model investment law for insurers that may contain limits on specific investments caused some concern on the part of participants in the secondary mortgage market that the efforts would reduce investments in mortgage-backed derivatives (see The Mortgage Marketplace. April 27. page 1; March 9. page 3; and Jan. 13. page 1).
But the NAIC units' action last week plus subsequent developments in the model investment law project should put those fears to rest.
Though the work is not yet completed on the volatility measure. the final form of that Instrument won't threaten investments in MBS derivatives either, Gorski said. 'Its sole purpose is to permit regulators to get a better hold on the cash flow volatility of companies' assets and liabilities.' he said.
Gorski also said the proposed risk-based capital requirement released for public comment last week by the NAIC is not aimed at derivative holdings.
As of last Dec. 31. total mortgage-related securities held by life insurers amounted to $189.6 billion. equal to 12% of assets and 21% of all bond holdings. according to the American Council of [.fie Insurance.
'The whole asset side of the balance sheet has been changing. with a preference for high-quality products with more liquidity.' said Henri Bersoux, a spokesman for ACLI. 'Mortgage-backed derivatives fit those requirements.