Pacific Investment Management Co., which regulators hired to monitor insurers' mortgage bond portfolios, will analyze the effect of home price declines of as much as 61%.

The Newport Beach, Calif., company's own "standard base case" view of a drop of 38% will be given the most weight in its valuations of residential mortgage-backed securities owned by insurers, the National Association of Insurance Commissioners said in a memo released Wednesday. The analysis will assume a minimum peak-to-trough decline of 33%.

Regulators this month selected Pimco, which manages the world's largest bond fund, to assess the securities. Regulators are relying less on ratings from firms such as Standard & Poor's Corp. in determining insurers' capital needs.

Regulators monitor investments to make sure carriers have enough money for claims.

The industry asked them to change their approach after downgrades caused capital requirements to surge fivefold.

The insurance commissioners' task force said in the memo that Pimco will use "a discount rate" that will be "applied to each bond's losses to arrive at a net present value," and "the interest rate used to discount the bond flow will be the bond's effective coupon rate."

Home values have fallen 29% on average since peaking in July 2006, according to an S&P/Case-Shiller index for 20 metropolitan areas.

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