(Adds rating company comment)

By Al Yoon

NEW YORK, Nov 6 (Reuters) - U.S. insurance regulators on Friday approved development of a new model for sizing up risks in mortgage bonds held by insurers that cuts reliance on traditional credit rating companies.

The National Association of Insurance Commissioners, a group of state insurance regulators, said its plan reflects a loss of confidence in the rating companies.

The ratings agencies, such as Standard & Poor's, Moody's Investors Service and Fitch Ratings, have been blamed with contributing to the financial crisis by assigning top ratings to the securities linked to mortgages at the heart of the crisis.

The NAIC's change would rely on a new third-party designation of the risk in holding mortgage bonds, instead of only ratings handed out by the rating companies.

But while criticizing the rating companies, the new model may result in more liberal treatment of mortgages.

"This is a big story as it involves a regulatory body moving away from a pure ratings-based approach to assessing risk and assigning capital requirements," said Scott Buchta, a strategist at Guggenheim Capital Markets in Chicago.

The new model would address regulators' concern that mortgage losses are not treated appropriately in current ratings, inasmuch as they determine the capital that insurance companies must hold against the securities, the NAIC said in a statement.