NAIC Fall 2016 National Meeting Update – Valuation of Securities Task Force

At the NAIC Fall 2016 National Meeting, the Valuation of Securities Task Force (VOSTF) discussed updates from the Reporting Exceptions Subgroup, SVO-identified funds, and other changes. VOSTF also held a special meeting to further discuss infrastructure investments.

Reporting Exceptions Subgroup Report

The Reporting Exceptions Subgroup was originally formed to address Jumpstart exceptions found in Schedule D reporting where the designation in insurer reports does not match what is in the AVS+ database or there is no entry in AVS for the security. Most notably, the report suggested that the SVO should be the final source for NAIC designations on filing exempt securities. Several interested parties, including Bloomberg, ACLI, and NASVA, took issue with the report for the following reasons:

1. SVO systems are not perfect, and the current proposed wording would leave little to no room for an insurer to challenge incorrect information.
2. The proposal by the Reporting Exceptions Subgroup would give SVO authority to exclude ratings when it deems necessary, with little specification for why or if it would notify insurers.
3. Because of the SVO’s contracts with CRPs, investigation of differences between the insurer and SVO would not be possible.

Bloomberg spoke at the session in favor of insurers continuing to use any source instead of limiting them to the AVS system (many insurers use Bloomberg to determine NAIC designations). Bloomberg offered to discuss differences between their credit rating and the SVO’s, and they have made a year of credit ratings data available for review for the SVO. They also offered to review an AVS+ extract compared to their ratings to explain the differences.

To compromise with Industry, the VOSTF plans to modify the wording appearing in the P&P Manual. Their modifications would not require an insurer to report a security as unrated if they are confident it is rated by an NRSRO but it is not seen in AVS. The goal of the project is to reduce “false positive” exceptions and help states remedy situations where the insurer is not reporting a defensible designation. The VOSTF also recognized a need for an appeal process for AVS designations.

The suggestion that insurers should submit private letter ratings to the NAIC beginning July 1^st, 2017 was not discussed, but worth noting.

SVO-Identified Funds

The VOSTF reviewed a referral from SAPWG concerning BlackRock’s systemic value calculation. The SVO reviewed the proposed calculation and agreed to the majority of the proposal. They expressed concern about how bonds within the fund would be treated. The SVO asserted that the proposed calculation did not result in a significant enough change in the calculated value. In response, BlackRock expressed that current impairment guidance in SSAP No. 26 should apply. BlackRock proposed that companies should determine when a security is other-than-temporarily impaired at least quarterly and take an impairment loss accordingly. This item was referred back to SAPWG with the aforementioned impairment concerns.

Special Infrastructure Meeting

The VOSTF discussed the special session during the NAIC Summer 2016 National Meeting to discuss infrastructure investments. The VOSTF will continue to educate themselves on these investments and are open to adding or changing guidance, but they need more specific proposals from interested parties before they take definite action. Members of the ACLI commented they would come forth with some specific proposals for the VOSTF.