Live Blog: Mortgage Guaranty Insurance (E) Working Group Spring NAIC Meeting
The Mortgage Guaranty Insurance (E) Working Group (the “Group”) Spring NAIC Meeting focused on the debate around the NAIC’s latest draft of the Mortgage Guaranty Insurance Model Act (the “Act”). Committee members discussed a plethora of comments received during the comment period, including recommendations from industry participants that: (i) proposed capital standards drop requirements that insurers maintain RBC scores above company action levels, particularly with respect to the restriction on writing new business and issuing dividends, (ii) geographic region not be taken into account with respect to underwriting risk reviews, (iii) restrictions be dropped with respect to investments secured by real estate, (iv) the requirement that 25% of risk stay with the insurer and not be reinsured be removed, and (v) increase the maximum allowable loan-to-value ratio of 95% to 100%, with participants noting that some states set this allowable ratio at 103%.
Certain members of the Group were particularly against requests to remove requirements for additional contingency reserves. Industry participants, including attorneys from major law firms, argued that the development of an RBC formula would negate the need for additional contingency reserves. However, certain committee members of the Group noted that, unless specifically shown otherwise through financial statements of various companies, the financial crisis resulted in many insurers quickly exhausting contingency reserves, and therefore extra capacity is needed this time around. General discussions between market participants and Group committee members also took place regarding the potential for overreach by regulators into underwriting policies and guidelines, and the some members of the Group suggested that a future draft of the Act would be less restrictive on underwriting guidelines.
The meeting concluded with an update on federal developments, including pending legislation in the U.S. Senate that would give the federal government authority to force mortgage guaranty insurers into receivership if they did not abide by certain federal standards. While the potential legislation explicitly notes that ultimate regulatory power will still rest with the states, some of the Group members took the view that the legislation would act as a federal usurpation of authority.
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