Capital Risk Weighting Designations Are In


The National Association of Insurance Commissioners’ capital designation prices for year-end 2011 show a modest average decline that should have a limited but nuanced effect on the securitized non-agency market, a Barclays report suggests.

The capital designation prices used to determine the amount of risk-based capital insurers have to hold against securities fell on average from 2010 but the average price change was modest for designations that affect non-agency mortgage-backed securities, Barclays securitization researchers said in the report.

“Declines in prices were largest in alt-A, with smaller declines in designation prices for jumbo,” the report said. “Subprime prices rose, but only marginally, on average.”

The researchers said, “Approximately 1,000 bonds lost their zero-loss designation in the NAIC ratings. Most of these were jumbo, subprime, or ReREMICs.

“Although NAIC designation price declines were minimal for these bonds it will require more capital to hold these bonds, which could make them less attractive, particularly if they had been trading at premiums.”

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