Sabrina Wilson, CPA, FLMI
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 15 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.
Three NAIC working groups met recently to adopt updated regulatory guidance and discuss proposed changes. Clearwater attended these meetings to track updates pertaining to investment accounting.
Here’s what you need to know from the Statutory Accounting Principles Working Group, the Blanks Working Group, and the Life-Risk Based Capital Working Group.
The Statutory Accounting Principles Working Group met on May 24, 2022.
Ref #2022-08: INT 22-01T Freddie Mac When-Issued K-Deal (WI Trust) Certificates
This item addresses new investments issued by Freddie Mac. This investment type is backed by cash held in trust on Day 1, and cash will be exchanged for one or more structured pass-through certificates (SPCs) within 90 days. The WI trusts pay fixed coupons to the investors as if K-Deal certificates had been acquired prior to the asset transfer date.
This item clarifies this investment type is in scope of SSAP No. 43R from initial acquisition because the WI program is fully guaranteed by Freddie Mac at original acquisition that the investor will receive K-Deal certificates.
The draft was adopted as final.
Ref #2021-21: Related Party Reporting
This item was exposed on December 11, 2021, and re-exposed on April 4, 2022. It is not a statutory accounting revision on the definition of an affiliate, but it adds clarification guidance to SSAP No. 25 and 43R that clarifies the investments should be identified as related party investments on the investment schedules if they are originated, managed, sponsored, serviced, or acquired from a related party, regardless of whether the investments are currently reported in affiliated reporting lines on the investment schedules.
The working group sponsored a blanks proposal (2021-22BWG) that identifies investments involving related parties on Schedule B (Mortgage Loans), BA (Other Invested Assets), D Part 1 (Bonds), D Part 2 Section 1 (Preferred Stocks), D Part 2 Section 2 (Common Stocks), DA (Short Term Investments), DB (Derivatives), DL (Securities Lending) and E Part 2 (Cash Equivalents) by adding a new electronic column, “Investments involving related parties.”
The working group is supportive of the inclusion of Code 6 – Investment doesn’t involve related party, to eliminate potential confusion on whether a blank represents incomplete reporting or a non-related party relationship.
Interested parties said the investments that are managed by the affiliate and have no underlying credit exposure to the affiliate of the insurer should not be considered as affiliated. For example, the CLOs are managed by the affiliate and have no direct credit exposure to an affiliate. If those investments are considered as affiliated, they would no longer be eligible for filing exemption, and the insurers would have to file them with the SVO for an NAIC Designation Category, pursuant to SVO P&P Manual Part 3 Paragraph 4.
Interested parties also asked for more time to implement the look-through of affiliated investment structures. They said foreign registered funds should also be exempt from the look-through requirement, other than exchange traded funds (ETF) or SEC-registered mutual funds.
Both Chairman Dale Bruggeman, and Co-Vice Chair Kevin Clark, emphasized this agenda item does not intend to make any changes to what should be reported as affiliated or unaffiliated investments. The definition of an affiliate is captured in the Model Act#440, SSAP No. 25 and SSAP No. 97. However, it came to their attention that there are inconsistencies on the reporting of investments as affiliates or unaffiliates. Regarding the concerns from the interested parties, the working group:
It was adopted with minor edits to SSAP No. 43R Paragraph 6b, effective December 31, 2022.
The next SAPWG meeting will be held on July 18, 2022. The group is scheduled to discuss the proposed bond definition.
The Blanks Working Group held a meeting on May 25, 2022.
Adopted Items with Effective Date of 2022 Annual
Ref #2021-22BWG Modified: Add a new reporting requirement in the investment schedules for investment transactions with related parties (2021-21 SAPWG)
This item corresponds to agenda item 2021-21, adopted by the SAPWG on May 24, 2022. It adds an electronic column on Schedule B, BA, D, DA, DL, DB, and E Part 2 that captures investments issued by a related party or acquired through a related party transaction or arrangement. Dale Bruggeman, the Chairman of SAPWG, said the interested parties suggested limiting the new electronic column to Schedule BA and D only, but the intent is to allow the regulators to be able to find all investment transactions that involved related parties. He emphasized this new electronic column is applicable to mortgage loans (Schedule B), other invested assets (Schedule BA), long-term bonds (Schedule D Part 1), preferred stocks (Schedule D Part 2 Section 1), common stocks (Schedule D Part 2 Section 2), short-term investments (Schedule DA), securities lending (Schedule DL), derivatives (Schedule DB), and cash equivalents (Schedule E Part 2).
SAPWG is also supportive of the new reporting Code 6 – Investment doesn’t involve related party. The intent is to avoid ambiguity or confusion in the future, and it clarifies codes 2 through 4 also apply to mutual funds, limited partnerships, and limited liability companies.
Ref #2022-01BWG: Add new questions to General Interrogatories Part 1 (2021-24 SAPWG)
This item corresponds with the temporary interpretation INT 21-01, which was adopted in 2021, and SAPWG agenda item 2021-24, which was adopted at the Spring National Meeting. It adds new general interrogatory questions 38 and 39 to gain a better understanding of if and how directly held cryptocurrencies are being utilized by insurers.
Ref #2022-02BWG: Add four new electronic-only columns to Schedule D, Part 6, Section 1 (2021-22 SAPWG)
This corresponds with SAPWG agenda item 2021-22, which was adopted at the Spring National Meeting. It adds four electronic columns (see below) to Schedule D Part 6 Section 1 to ensure Sub-1 and Sub-2 filings are submitted by the insurers and identify if the reported value on Schedule D Part 6 Section 1 is different from the NAIC approved value.
It was adopted with minor edits suggested by the interested parties.
Ref #2022-06BWG: Revise the Health Annual Statement Test language in the annual statement instructions
This item revises the Health Annual Statement Test language to require insurers who write predominantly health business and file on the Life or P&C Blanks to now begin filing on the Health Blank.
The Health Test Ad Hoc Group will continually evaluate if additional change is needed.
Ref #2022-11BWG: Update the Life/Fraternal Blank Asset Valuation Reserve (AVR) factors to correspond with the adopted Risk-Based Capital (RBC) factors for the expanded bond designation categories.
This item updates the AVR factors on the AVR Default Component report to correspond with the RBC bond factors adopted last year for the expanded bond NAIC designation categories. There were no comments received during the public comment period but there was one minor correction – checking the separate account box on the cover page.
The working group confirmed receipt of the memorandum from the P&C RBC Working Group regarding the removal of the embedded 2% operational risk charge from Schedule F Part 3. The removal was approved by the Capital Adequacy Task Force on March 28, 2022.
The Life-Risk Based Capital Working Group held a meeting on June 3, 2022.
Adopted Item Effective December 31, 2022
Instructional change for residual tranches and interests on LR008 Other Long-term Assets
This item adds the new instruction to clarify residual tranches should be reported in line 49.2 to facilitate the changes being made for this year-end for Schedule BA and the Asset Valuation Reserve (AVR) Equity Component Report.
Affiliated Investments Instructions and Structures LR030-LR031, LR042-LR044
The goal of this exposed item is to have accurate and consistent categories across all three Risk-Based Capital (RBC) groups. If there is any change needed, it would be made to all three RBC groups when this item is adopted.
The major proposed changes include:
The working group’s chairman said this item is the result of a lot of work done by the Affiliated Ad Hoc Group, regulators, and the interested parties.
It was exposed for public comment for 45 days.
The next LRBCWG meeting will be held on June 17, 2022.