| NEW YORK, June 11
NEW YORK, June 11 U.S. credit rating company
Realpoint on Thursday said insurers may soon be allowed to use
its commercial mortgage bond ratings and preserve capital if
rival Standard & Poor's moves to slash its designations.
The National Association of Insurance Commissioners is
expected to approve the company as a source of ratings for the
commercial mortgage-backed securities held by insurers, who are
among the biggest investors in the $700 billion market for debt
backed by office, retail and apartment buildings, Realpoint
Chief Executive Rob Dobilas told Reuters.
The NAIC move would give insurers more flexibility in
choosing ratings that determine their capital levels and avoid
forced selling of the assets if S&P adopts more conservative
models. Insurers can use the middle rating, if there are three,
according to Dobilas.
S&P shocked the the CMBS market last week by advising that
its new models, if adopted, would likely prompt ratings cuts on
95 percent of top bonds issued during the peak of the real
estate cycle in 2007 and 85 percent of CMBS from 2006. S&P is
mulling responses from a formal request for comment.
Some 50 insurers have contacted Horsham, Pennsylvania-based
Realpoint over the last few days, saying, "you guys need to get
approved" by the NAIC, Dobilas said.
"Realpoint acts as a trump card to any action that S&P
takes," he said. "We don't perceive any problem" getting
approved by the NAIC, he added.
The NAIC, which represents all of U.S. state and territory
insurance regulators, affirmed that Realpoint's application has
been received by NAIC's Securities and Valuations Office.
Analysts fear the cuts by S&P would cause a wave of selling
by investors, including insurers, who are limited to AAA-rated
securities. Downgrades are also seen as a threat to a Federal
Reserve program to boost lending in U.S. commercial real estate
as the central bank currently requires bonds eligible for the
program carry only AAA ratings.
But the shaky U.S. economy is increasingly driving
forecasts for commercial property, which will probably get
worse before it improves, according to many attendees of a
Commercial Mortgage Securities Association conference this
week. Commercial property typically lags by a year trends in
residential real estate, which is in its worst downturn since
the Great Depression.
NAIC approval of Realpoint "could be a short-term capital
relief for insurance companies" if S&P cuts ratings, said Scott
Buchta, a strategist at Guggenheim Capital Markets in Chicago.
"Longer term, should fundamentals in commercial real estate
decline further, others may follow S&P."
Realpoint doesn't see "massive" downgrades of top-tier
CMBS, Dobilas said.
(Editing by Padraic Cassidy)