NAIC Changes – How Will They Impact You?

Last week I posted about the NAIC’s new electronic-only column requirements. The objective was to get that information out to the industry as soon as possible so insurance companies can start making preparations for what could be a major change to their investment management. Now that we’ve had some time to review the NAIC change, we can ask the important questions: What do these new requirements really mean? What is the true impact to insurance companies?

These are simple questions, but they have complex answers. Let’s start by looking at the proposal requirements. First, the NAIC has requested that for Description (column 2), the reporting entity be encouraged to use the same entry as the new electronic-only columns Issue (column 32) or Issuer (column 31). The preferred entry sources are:

• Bloomberg
• Interactive Data Corp
• Thomson Reuters
• S&P/CUSIP

Descriptions used in either the relevant SEC filing or legal documentation for transaction. So back to the important question of how this impacts insurance companies. The first question that insurance companies need to ask themselves is Do I currently track Issuer in my investment accounting system? The good news is yes, most systems have this field.

The trickier question is: What is currently populated in that field? The unfortunate truth is that most insurers manually populate the Issuer field based off of manual entries into the investment master. Prior to joining Clearwater, I saw many insurance companies set up this field inconsistently. Manual entry is never ideal, since it introduces the likelihood of user error, but on top of that many insurers would just use the first six digits (base CUSIP) for their Issue/Issuer field, while others would use a short name for the Issuer, and still others would use a combination. Even more worrisome were the companies that simply had no consistency. For example, one insurance company would use United States TREAS in some cases, and in other cases use US TREAS. In the end, whether the company used the base six digits, a short name, or some other manual and inconsistent approach, the problem is ultimately the same: inaccurate data.

Assuming you have access to the data that the NAIC encourages reporting entities to use, the next step is auditing and correcting every security that was held or traded during 2015. This process can be easy or very time-consuming, depending on individual insurers’ tools and level of automation. Without the right tools in place, it will be difficult for investment teams to find time to audit and correct the four new columns, while still keeping up on their actual job tasks.

As you can see, what is theoretically a simple change has much deeper real-world impacts. This is why using an investment accounting and reporting vendor with an automated, detailed, and validated security master is critical to your organization’s success.

Because Clearwater is an automated solution, we respond quickly to regulatory changes. While the change may potentially add another manual burden to some insurers, for those who use Clearwater for their investment accounting, the NAIC’s changes to the electronic-only columns don’t change their reporting processes at all: They automatically receive the NAIC reports within hours of the SVO file becoming available on each quarter-end and the electronic-only fields are automatically populated with accurate, up-to-date data. That’s it. Simple, right? That is what Clearwater does—makes complying with complex insurance regulation simple and seamless.