NAIC Releases Requests for Proposals to Model Valuations for Commercial and Residential Mortgage Backed Securities

WASHINGTON, Feb. 19 -- The National Association of Insurance Commissioners issued the following news release:

The National Association of Insurance Commissioners (NAIC) has released separate requests for proposal (RFP) for vendors to model expected losses on approximately 6,000 commercial mortgage backed securities (CMBS) and 24,000 residential mortgage backed securities (RMBS). This process will produce valuations for state insurance regulators to set risk-based capital for CMBS and RMBS owned by U.S. insurance companies.

For over 10 years, probability weighted net present values have been produced under NAIC supervision by financial modelers using their proprietary financial models with defined analytical inputs approved by the NAIC Valuation of Securities Task Force of the Financial Condition (E) Committee. Under adopted procedures, the vendor provides the NAIC with a range of net present values for each security corresponding to each NAIC designation category (NAIC-1 to NAIC-6). The reported NAIC designation for a security is then determined by the insurance company, based upon an NAIC proprietary formula. Consistent with NAIC policy, the NAIC periodically submits third-party contracts to competitive rebidding.

Applicants must have the following qualifications to be considered:

* Be a nationally recognized firm with a minimum of five years experience in performing valuations of complex structured securities.

* Have the capability to assign sufficient qualified staff to this project.

* Have a methodology that can be quickly modified and implemented.

* Have access to loan-level details for the universe of CMBS and RMBS.

* Have the data processing capability required to generate these valuations by mid-December of each year of the contract.

* Have safeguards in place to avoid conflicts of interest.

* Have the capability to model new issuance.

* Be a financially sound entity.

Proposals are due by March 29, 2021. Bidders are welcome to submit one proposal for one of the two RFPs or in response to both. Responses will be reviewed by NAIC senior management and a recommendation will be made to the NAIC Executive Committee for its consideration in mid-2021.