Sabrina Wilson, CPA, FLMI
Global Regulatory Policy Expert
Sabrina serves as a subject matter expert for regulatory filings at Clearwater. In this role, she works with internal teams for the ongoing enhancement of NAIC reports. Sabrina has over 20 years’ of statutory accounting and reporting experience and uses her background to communicate industry best practices and comment on regulatory guidance and procedures. She also handles complex statutory accounting and analytics questions posed by our user community.
Sabrina is a certified public accountant, has earned the designation of Fellow, Life Management Institute (FLMI), and has a master’s degree in accounting and taxation from Boise State University.
Both the Financial Condition Committee and Risk-Based Capital Investment Risk and Evaluation Working Group of the NAIC held a joint meeting on Jan. 12, 2022. The following updates pertain to investment accounting.
REQUEST FOR COMMENT WITH DEADLINE OF FEB. 28, 2022
Review of the RBC treatment of asset-backed securities (ABS) including collateralized loan obligations (CLOs), collateralized fund obligations (CFOs), or other similar securities carrying similar types of tail risk.)
As part of the bond projects, the Statutory Accounting Principles Working Group (SAPWG) moved the residual tranches from reporting on Schedule D Part 1 with a self-assigned NAIC Designation 6* to Schedule BA without a self-assigned NAIC Designation effective Dec. 31, 2022, with early adoption allowed.
Regulators have concerns over the RBC charge for the other structured securities that contain similar types of tail risk (i.e. non-default risk), including CLOs, CFOs, and others. They wondered if a modeling approach similar to what RMBS/CMBS use could apply here. In that approach, the NAIC sends the insurers price points or single designations if those asset-backed securities can be modeled.
The Life RBC Working Group previously worked with Moody’s Analytics (hired by the ACLI) on the bond refactor for Life RBC. Philip Barlow, the Chair of the working group, said the ACLI could hire the consulting firm again to work on this issue, with research instructions directly from the working group. There may not be a need for the NAIC to hire the consulting firm directly.
The Working Group asked for feedback on:
- Methodologies for capturing the risk (including tail risk) that exists with such assets (e.g., ratings-determined bond factors, a modeling process akin to the current CMBS/RMBS approach, or other proposals)
- How a consultant or consulting actuary could be used by the NAIC to determine the appropriate charge based upon certain data
- The need for review outside of Life RBC (e.g., Health, P&C)
- Whether residual tranches in ABS structures can be evaluated in conjunction with and under similar methodologies as the debt tranches
- Specific proposals for addressing RBC treatment of residual tranches to reduce arbitrage incentives
Life Risk-Based Capital Working Group
The Life Risk-Based Capital Working Group of the NAIC held a meeting on Jan. 20, 2022. The following updates pertain to investment accounting.
Other Items
ASSET VALUATION RESERVE FOR BOND FACTOR CHANGES.
Asset Valuation Reserve (AVR) is the last piece of work that needs to be done for the Phase I of a Bond Factor Proposal. The ACLI is currently working on this with NAIC staff. NAIC staff said the AVR factor change will also involve the other two working groups, e.g., SAPWG and Blanks Working Group, and the Life RBC Working Group historically drives the AVR factor change. To get the AVR factor changed effective for 2022 year-end, the agenda item must be exposed by the Spring National Meeting for adoption in June 2022.
ADDITIONAL RESOURCES
Visit this link to download the free Purposes and Procedures Manual of the NAIC Investment Analysis Office (SVO P&P Manual)
“SAP to Annual Statement Disclosure Checklists Updated for 2021 Annual Statements” are on the “Documents” tab found on the upper right side of at this link.