NAIC Summer 2018 Interim Update: Blanks Working Group

The Blanks Working Group met June 12 via conference call to review items previously exposed and to consider the adoption of new items.

Adopted Items

ITEM #2018-01BWG: UPDATE LANGUAGE FOR EXCHANGE-TRADED AND CENTRALLY CLEARED DERIVATIVES

A proposal was reviewed to clarify how the line “cleared derivatives” would be reported on the Schedule DB – Part D, Section 1 for Counterparty Exposure for Derivative Instruments Open. The proposal resulted in an additional subheading, “Over-The-Counter,” and an updated total row, “Aggregate Sum of Central Clearinghouses (Excluding Exchange Traded),” being reported on the quarterly and annual schedules.

This item was adopted and will be effective for 2018 annual reporting.

ITEM #2018-03BWG: ADD SUPRANATIONAL DEFINITION TO THE ANNUAL STATEMENT INSTRUCTIONS

A proposal to add the definition of “supranational” to the Supplemental Investment Risks Interrogatories was reviewed. The proposal would result in supranational being defined as “entities with more than one sovereign government as a member,” and reflected on the schedule as a line with the supranational and the union or member.

This item was adopted and will be effective for 2018 annual reporting.

ITEM #2018-06BWG: INCREASE NUMBER OF LINES FOR SCHEDULE DB

A proposal was reviewed to increase the available number of lines to be reported on the Schedule DB for derivatives. The increase of lines would be the result of the addition of “-999” to the end of each available line number. The proposal would add consistency between the line numbers reported on similar investment schedules, such as Schedules B, D, DA, and E, and allow insurers to report up to 9,999,996 lines on the quarterly and annual schedules.

This item was adopted and will be effective for 2018 annual reporting.

ITEM #2018-07BWG: MODIFY REPORTING DESIGNATIONS

A proposal to modify existing instructions for NAIC designations within the quarterly and annual statements was reviewed. The proposal had been referred from the Valuation of Securities Task Force (VOSTF) and reflected the efforts of the task force to reduce inefficient and obsolete practices. The original proposal included the following modifications:

1. Add new “PL” and “PLGI” symbols to the reporting instructions to identify securities subject to a private letter rating (referred to as PL securities)
2.  (a)  Add two new symbols: a “YE” symbol and an “IF” symbol to be used as part of a new “carry-over” administrative procedure of the Security Valuations Office (SVO), and (b) Modify definitions of the symbol “Z” if any definitions exist and define as an indicator that a security is in transition from one reporting status to another
3. Develop a new General Interrogatory for PL securities issued prior to January 1, 2018
4. Rename the “NAIC Designation” and “NAIC Designation/Market Indicator” columns to “NAIC Designation and Administrative Symbol” for Schedules BA, D, and DL
5. Remove designation matrices from instructions and replace with list of administrative symbols valid for use on Schedules BA and D
6. Remove the reference to “Life and Fraternal Only” in the general instructions for Schedule BA regarding investments that have the underlying characteristics of bonds or fixed instruments; also remove the reference from the instructions for Schedule BA regarding the CUSIP and NAIC Designation columns
7. Eliminate the use of “P” and “RP” with the designation and add specific line categories for perpetual preferred and redeemable preferred stock
8. Remove the “Market Indicator” column from Schedule D – Part 2, Section 2 for common stocks and renumber remaining columns on the schedule

During the call, representatives of the P&C Risk-Based Capital Working Group and the Health Risk-Based Capital Working Group expressed concern about including item number six, as they had not yet reviewed any potential impact on risk-based capital. Interested Parties agreed with the concerns expressed and asked that number six be eliminated from the current proposal. Regulators noted the concern raised and removed number six from consideration. NAIC staff noted the item could return as a separate proposal in the future after review by the P&C and Health Risk-Based Capital Working Groups for adoption in 2019.

Interested Parties also expressed concern regarding the inclusion of item number two, noting the “YE” and “IF” symbols would likely not be ready for 2018 annual reporting. NAIC staff responded that two versions of a file would be produced in the AVS+ product, allowing systems to ingest either of the files without requiring unnecessary burden to either insurers or vendors.

Additionally, concern was raised during the call by Interested Parties regarding items seven and eight. Insurers noted the timeframe of the changes would not allow them adequate time to update their systems and asked that the changes be deferred. Regulators agreed with the concern raised and removed items seven and eight from consideration. NAIC staff noted the items could return as separate proposals in the future for adoption in 2019.

This proposal was adopted with modifications removing items six, seven, and eight. It will be effective for 2018 annual reporting.

ITEM #2018-09BWG: MODIFY AND ADD NOTES FOR FAIR VALUE

A proposal to modify existing instructions and add a new disclosure to the footnotes of the Financial Statements was reviewed. The proposed changes were the result of previous changes made to SSAP No. 100R – Fair Value and resulted in the exclusion of any securities reported with Net Asset Value (NAV) from the fair value hierarchy. Instructions for Notes 20A, 20C, and 20D were modified to reflect disclosures of NAV as fields separate from the fair value hierarchies, rather than being included in Level 2. Note 20E was added to capture investments measured using NAV.

This item was adopted and will be effective for 2018 annual reporting.

ITEM #2018-10BWG: MODIFY INSTRUCTIONS FOR BIFURCATION OF OTTI INVESTMENTS

In 2017, the Statutory Accounting Principles Working Group (SAPWG) adopted revisions to SSAP No. 26R – Bonds, to clarify that investments with other-than-temporary impairments (OTTI) be included either on the Asset Valuation Reserve (AVR) or Interest Maintenance Reserve (IMR) reports, but not both. As a result of the SAPWG adoption, the BWG reviewed similar revisions to the AVR and IMR instructions to clarify that OTTI losses be reported entirely on either the AVR or IMR.

This item was adopted and will be effective for 2018 annual reporting.

ITEM #2018-11BWG: ADD ADDITIONAL INSTRUCTIONS FOR BA CATEGORIZATION

A proposal was reviewed to add additional instructions to the “Fixed or Variable Interest Rate Investments that Have the Underlying Characteristics of a Bond, Mortgage Loan or Other Fixed Income Instrument” and “Joint Ventures or Partnership Interests for Which the Primary Underlying Investments are Considered to Be Fixed Income Instruments” categories. These instructions clarify that investments should not be reported in those categories when there is a specific category available for the investment. The intent of the proposal was to avoid double-counting of assets, such as surplus notes, within the Schedule BA.

This item was adopted and will be effective for 2018 annual reporting.

ITEM #2018-12BWG MODIFIED: MODIFY INSTRUCTIONS FOR FINANCING PREMIUMS

A proposal was reviewed to modify the instructions for Note 8H and Schedule DB to incorporate revisions for financing premiums made to SSAP No. 86 – Derivatives by the SAPWG. The proposal would define financing premiums within the Schedule DB general instructions as “the premium cost to acquire or enter into the derivative is paid at the end of the derivative contract or throughout the derivative contract.” Additional changes included an added illustration for Note 8H to be data captured, electronic-only columns for the Schedule DB, Parts A and B, and a new code to the “Code” column for the Schedule DB, Part A. During the call, NAIC staff noted a typo had been included in the previous exposure, which was subsequently corrected and included in the modified proposal.

This modified item was adopted and will be effective for 2018 annual reporting.

ITEM #2018-14BWG MODIFIED: ADD ADJUSTMENTS FOR SEPARATE ACCOUNTS

A proposal was reviewed to distinguish separate accounts that had or had not been registered with the SEC on the Separate Accounts General Interrogatories. In addition, the proposal included a new question, 101A, to be included for private placement variable annuities and private placement life insurance. During the exposure period, comments from Interested Parties were limited to those regarding number or formatting. NAIC staff adopted these comments within the modified proposal.

This modified item was adopted and will be effective for 2018 annual reporting.

ITEM #2018-15BWG MODIFIED: ADD NOTE 10O DISCLOSURE

A proposal was reviewed to add a new disclosure to Note 10, reflecting changes made by the SAPWG in SSAP No. 97 – Investments in Subsidiary, Controlled and Affiliated Entities. The new disclosure, Note 10O, would require the disclosure of losses exceeding the investment in a Subsidiary, Controlled and Affiliated entity (SCA). The proposed disclosure would require disclosure of:

•  The name of the SCA investment
•  The reporting entity’s current period share of SCA net income or loss
• The reporting entity’s accumulated share of SCA losses not recognized during the period equity method was suspended
• The reporting entity’s share of the SCA equity
• Any guaranteed obligation or commitment for financial support
•  The SCA’s reported value

During the exposure period, the BWG received comments from Industry. The comments were noted and incorporated in the concurrent SAPWG proposal for SSAP No. 97. Additional modifications were made by NAIC staff to the comment headings, which would now require a one-year disclosure (rather than two years, as previously proposed).

This modified item was adopted and will be effective for 2018 annual reporting.

ITEM #2018-17BWG: MODIFY INSTRUCTIONS FOR NOTE 17C – WASH SALES

A proposal was reviewed to modify existing instructions for the Note 17C – Wash Sales to exclude cash equivalents, derivative instruments, and short-term investments with NAIC 1-2 designations. The proposal was made as a result of similar adoptions made by the SAPWG to SSAP No. 103R – Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.

This item was adopted and will be effective for 2018 annual reporting.

ITEM #2018-18BWG MODIFIED: COMBINE LIFE AND FRATERNAL REPORTING GUIDANCE

A proposal was reviewed to combine annual and quarterly reporting for Life and Fraternal companies. The combined statement would be based on the current Life statement. The proposal was raised to reduce redundant reporting publications, as well as reduce the burden on both insurers and regulators for maintenance. During the exposure period, comments were received from Interested Parties regarding modifications to the proposal. NAIC staff members incorporated the modifications in the proposal.

This modified item was adopted and will be effective for 2018 annual reporting.

Other Items

ITEM #2018-02BWG MODIFIED: UPDATE COLUMNS AND ROWS FOR INVESTMENT SCHEDULES

NAIC staff members spoke during the call and advised of current progress made to update references in the Summary Investment Schedule to columns and rows to different investment schedules. Although some progress had been made, staff members advised further updates were needed to incorporate a memo received from the SAPWG.

A motion to adopt modifications to Item #2018-02BWG was carried. In addition, a motion to defer the modified proposal to consider the SAPWG memo was carried. The deferred item is expected to be effective for 2018 annual reporting.