Content Locked Content Unlocked *Required Fields

Please provide the following details:


Clearwater Analytics is dedicated to keeping insurers updated on the latest regulatory guidance changes regarding investment accounting and reporting. In order to provide readers with a comprehensive view of these changes, our insurance experts attended conference calls and tracked guidance as it was adopted and discussed. The following market insight paper is a summary of the NAIC’s updates pertinent to investment accounting and reporting.

Temporary Interpretations for Statutory Accounting

The SAPWG held conference calls April 15 and May 20 to discuss and approve temporary interpretations due to current market conditions affecting regulatory guidance.

The following temporary interpretations were adopted April 15, 2020, and SAPWG will continue to monitor conditions and may extend the effective date.

INT 20-01: Reference Rate Reform - LIBOR

NAIC staff actively monitored the FASB discussion on reference rate reform. ASU 2020-04, issued in March, references LIBOR in hedging instruments and other financial instruments. It allows the continuation of those instruments without remeasurement or reassessment if certain criteria are met. As the reference rate changes are a market-wide initiative, it is outside the control of an entity to make modifications to the hedging instruments. 

This was adopted effective from March 12, 2020 to December 31, 2022. 

INT 20-03: Troubled Debt Restructuring “TDR” Due to COVID-19

This item clarifies that a debt restructuring (e.g. modification of mortgage loans or bank loans that were current prior to December 31, 2019) is not necessarily considered a troubled debt restructuring within SSAP No. 36. It is not a concession if the payment due delay is insignificant. The creditors may presume that borrowers current on payments are not experiencing financial difficulties at the time of the loan modification for purposes of determining TDR status, and thus no further TDR analysis is required for each loan modification in the program.  

The item was adopted effective March 1, 2020 to December 31, 2020, or the date that is 60 days after the COVID-19 national emergency terminates. 

INT 20-04: Mortgage Loan Impairment Assessment Due to COVID-19

This item provides temporary relief for the assessment of impairment for bank loans, mortgage loans, and investments which predominantly hold underlying mortgage loans, e.g. SEC registered investments (mortgage-backed mutual funds), loan-backed and structured securities (e.g. residential and commercial mortgage-backed securities, credit risk transfers issued through government-sponsored enterprises), and joint ventures, partnerships and limited liabilities companies (e.g. private equity mortgage loan funds). It would not delay the recognition of other-than-temporary impairments (OTTI) if the entity decided to sell the investment or there is evidence that it would not recover the reported carrying value of the investment, e.g. the debtor filed for bankruptcy.

NAIC staff stated that future impairment assessments shall be based on the modified instead of original contractual terms.

The item was adopted and will expire September 29, 2020.  

The following temporary interpretations were adopted May 20, 2020 and are effective immediately.

INT 20-05T: Investment Income Due and Accrued

This item stipulates that no evaluation on collectability would be needed for Q1 and Q2 2020 financial statements unless other events occurred, e.g. bankruptcy that investment income would not be collected are known. This item affects mortgage loans, bank loans, and investments with underlying mortgage loans impacted by forbearance or modifications that were current as of December 31, 2019, and the borrowers didn’t have financial difficulties when the loan was modified.

It allows accrued investment income that is deemed collectible to be admitted even though it may be 90 days overdue in Q2 2020. It does not provide an exception for accrued interests for mortgage loans  in default, but it adds that the determination of whether a loan is in default should be based on the modified contractual terms of the loan and not the original contractual terms in paragraph 10c, per interested parties’ comments.

Interested parties stated they appreciate that staff included this clarification in paragraph 10c.

This interpretation will be considered for extension in August 2020, or it will be automatically nullified on September 29, 2020.

INT 20-06T: Participation in the 2020 Term Asset-Backed Securities Loan Facility “TALF” Program

The Federal Reserve reestablished the Term Asset-Backed Securities Loan Facility (TALF) in March 2020. Under this program, the Federal Reserve will lend on a non-resource basis to the holders of certain AAA-rated ABS backed by eligible ABS issued on or after March 23, 2020. The loans will have a term of three years and will be fully secured by eligible ABS.

This applies when the reporting entity is either a direct borrower or investor in the 2020 TALF Loan Program.

Under this item, reporting entity borrowers shall report ABS pledged as restricted assets, and the assets pledged are subject to the underlying asset risk-based capital “RBC” charge but are excluded from an additional “restricted asset” RBC charge. The borrowers can continue reporting pledged ABS as admitted assets if the asset was qualified as an admitted asset before it was pledged to the TALF program and the borrower has not committed an uncured contract default. This interpretation provides an exception to INT 01-31, which requires a pledged asset be readily substitutable to be admitted. ABS that are pledged to this program can be admitted even though they are not substitutable. 

Reporting entity investors do not directly receive the TALF loan, but are investors to borrowers that receive the TALF loan. They are not allowed to admit assets pledged to the TALF program if they are not the direct borrower because the return of the assets would be contingent on the action of the borrower to the TALF program and not the reporting entity. This provision is consistent with SSAP No. 4, footnote 2.

Interested parties recommended removing the last sentence from paragraph 13. Staff originally proposed that language for clarity but agreed with the interested parties and removed that sentence. 

This interpretation will be effective for the duration of the TALF program.

INT 20-07T: Troubled Debt Restructurings of Certain Debt Instruments Due to COVID-19

The SAPWG adopted INT 20-03 and INT 20-04 for temporary accounting relief provided to mortgage loans and bank loans on April 15, 2020. After this adoption, interested parties asked the working group to consider the expansion of the same accounting relief to all SSAP No. 26R and 43R debt securities and private placement debt securities. 

The following are considered insignificant modifications, i.e. non-troubled debt restructurings:

  • Extending maturity by three years or less
  • Debt security restructurings in response to COVID-19 that solely impact covenant requirements 
  • Modification in response to COVID-19 that exceeds the practical expedient of a 10% cash flow shortfall but is deemed insignificant under SSAP No. 36 paragraph 10. It is recommended that reporting entities shall work with auditors and regulators to confirm if the shortfall qualified as insignificant.

The item was adopted with edits in response to some of the interested parties’ comments. 

It will only be applicable from March 1, 2020 to December 31, 2020, or the date that is 60 days after the national emergency concerning COVID-19 terminates.

Statutory Accounting Principles Working Group


The following items were adopted March 18, 2020 with nonsubstantive changes and are effective immediately unless specified otherwise.

Ref #2018-26: SCA Loss Tracking – Accounting Guidance

The working group adopted revisions to SSAP No. 5R – Liabilities, Contingencies and Impairments of Assets and SSAP No. 97 – Investments in Subsidiary, Controlled and Affiliated Entities so equity losses of the SCA will stop at zero and not go negative. Guaranteed liabilities would be reported to the extent that there is a financial guarantee or commitment. 

The revisions were exposed during the Fall 2019 National Meeting. The working group considered adopting the revisions at the fall meeting, but extended the exposure period to avoid adoption immediately before year-end and to allow more time to review edits from interested parties who commented that additional clarifications were needed to revisions for paragraphs 18, 24, and 25 of SSAP No. 5R. The recommendations from interested parties were included in the adopted revisions.

Ref #2019-32: Look-Through with Multiple Holding Companies

Revisions to SSAP No. 97 – Investment in Subsidiary, Controlled and Affiliated Entities to emphasize that a look-through is permitted through more than one downstream noninsurance holding company if each look-through entity complies with the requirements in SSAP No. 97, paragraph 27.

Interested parties had no comments.

Adopted effective January 1, 2021

Ref #2019-33: SSAP No. 25 – Disclosures

This item allows for data-capture of disclosures from SSAP No. 25 – Affiliates and Other Related Parties, which would allow regulators to aggregate and query related party relationships.

Interested parties agreed the clarifications are necessary and proposed minor edits.

The working group adopted the exposed data capture templates for SSAP No. 25 with the interested party edits. A Blanks proposal (2020-08BWG) will be considered for 2020 annual reporting. With this adoption, disclosures will still be made in a narrative (PDF) format to provide additional information regarding related party transactions. 

The following items were adopted May 20, 2020 and are effective immediately unless specified otherwise.

Ref #2019-20: Rolling Short-Term Investments

During the fall meeting, the working group exposed revisions to SSAP No. 2R – Cash, Cash Equivalents, Drafts and Short-Term Investments and SSAP No. 103R – Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. The proposed revisions restricted the classification as a cash equivalent or short-term investment for all affiliated SSAP No. 26R – Bond Investments and all affiliated and nonaffiliated investments in scope of SSAP No. 43R – Loan-backed and Structured Securities. It also applied to all investments that would be captured on Schedule BA in the event that:

  1. The reporting entity does not reasonably expect the investment will actually terminate or mature within the time frame permitted for cash equivalent or short-term investment classification.
  2. The investment was previously reported as a cash equivalent/short-term investment and the initial maturity time frames have passed.
  3. The investment was sold or matured and the same or substantially similar investment was reacquired within a one-year time frame.

Cash equivalents subject to SSAP No. 2R paragraph 7 are not allowed to be subsequently reported as short-term investments, even if the updated or reacquired maturity date is within one year. They shall be reported as long-term investments regardless of the initial maturity date. 

An additional disclosure was also proposed to identify short-term investments that remain on the short-term schedule for more than one consecutive year (Schedule DA) or one consecutive quarter (Schedule E Part 2).

An Interested party recommended the removal of “substantially similar investments” from SSAP No. 2R paragraph 16e. For example, the reporting entity may get a similar US Treasury bill within a year after the last one was matured. Based on the proposed guidance, a US Treasury bill would be classified as a long-term bond. NAIC staff said a US Treasury Bill is guaranteed by a sovereign government and thus, it is excluded from the definition of “substantially similar investments” pursuant to SSAP No. 103R paragraph 52.a. 

NAIC staff incorporated two changes suggested by interested parties; the first was an editorial change needed for SSAP No. 2R paragraph 16.e. Cash equivalents are missing in paragraph 16.e. The second was a revision to SSAP No. 103R paragraph 28.l., which states all affiliated investments including items originally classified as cash equivalents and short-term investments, and non-affiliated investments with an NAIC designation of 3 or below, or those that do not have an NAIC designation, are required to be disclosed in the wash sales footnote.

Ref #2019-42: Cash Equivalent – Cash & Liquidity Pools

This item was drafted after feedback was received from interested parties regarding Ref #2019-20 (Rolling Short-Term Investments). Feedback was received that cash pooling could potentially be inadvertently scoped into short-term rolling guidance. Therefore, this item recommended revisions to allow specific structures that strictly hold cash, cash equivalents, and short-term investments and meet certain other criteria, to be captured under SSAP No. 2R.

Interested parties proposed further modifications to paragraph 8 to address the varied characteristics of pools outlined by each company. The reporting entity may look through the ownership structure and report the assets as either cash equivalents or short-term assets based on the predominant characteristics of the underlying assets. 

The NAIC recommended the working group adopt the exposure along with the recommended revisions.
Staff emphasized cash liquidity pooling not be allowed to be reported as cash equivalents or short-term investments prior to January 1, 2021, unless approved by the domicile. The reason for this is because they do not meet the requirements for reporting within current scope of SSAP No. 2R.

The item was adopted with an effective date January 1, 2021 with early adoption allowed.

Ref #2019-25: Working Capital Finance Investments

During the fall meeting the working group exposed substantive revisions to SSAP No. 105—Working Capital Finance Investments, using six of the 10 industry-proposed concepts: functionally equivalent foreign regulators, commingling prohibitions, investor rights edit, requirements for filer to certify perfected interest, finance agent validation requirements, and for default date.

The ACLI commented that the implementation of SSAP No.105 was not successful and adoption had been low. The ACLI also offered markups to the P&P Manual with what they’re calling “10 required items” to increase adoption.

Interested parties appreciated that SAPWG and VOSTF incorporated six of their 10 items into SSAP No. 105, but they believed WCFI will remain under invested until the remaining four items were approved. They asked the working group to consider incorporating those four industry-requested changes into SSAP No. 105

It was adopted with a friendly amendment. The sentence, “Initial permission to invest in Working Capital Finance Investment Programs may be required by the domiciliary commissioner,” was removed from SSAP No. 105 paragraph 16. 
Notification will be sent to VOSTF of this adoption.

Ref #2019-37: Surplus Notes – Enhanced Disclosures

The SAPWG discussed SSAP No. 41R – Surplus Notes during previous national meetings. This item is meant to consider new disclosures involving surplus notes to better identify these situations in the statutory financial statements.

Interested parties provided extensive revisions to the exposed item on SSAP No. 41R paragraphs 18-20. 

The working group essentially agreed with interested parties’ revisions. 

This item was adopted effective December 31, 2020. NAIC staff will do the data capture from the 2020 financial statements and report to the working group in 2021.

Ref #2020-07: Change to the Summary Investment Schedule

The working group exposed revisions to Appendix A-001, Section 3, Summary Investment Schedule to add a line for total valuation allowance. 

Staff became aware of a crosscheck error in the Annual Reporting Blanks where total mortgage loans reported on the Summary Investment Schedule do not tie to the amounts reported in Schedule B, Part 1. It was found to be caused by the total valuation allowance being excluded from the Summary Investment Schedule. The revisions would add in valuation allowance so the schedules tie together. 

The item was adopted.

Ref #2020-14: Assessment of OTTI Based on Original Contract Terms

This item fixes a disconnect between SSAP No. 26R, SSAP No. 36 and SSAP No. 103R. Pursuant to SSAP No. 26R, other-than-temporary impairment (OTTI) assessments were based on the original acquisition terms whereas OTTI assessments were based on the modified contractual terms per SSAP No. 36 or 103R.

A new footnote was added to SSAP No. 26R paragraph 13. It states the subsequent OTTI assessments shall be based on the modified contractual terms if a bond has been modified from the original acquisition.


Ref #2019-39: Acceptable Collateral for Derivatives

Proposed revisions were exposed during the Fall 2019 National Meeting to address possible misinterpretation of Blank instructions on Schedule DB-D, section 1, column 4 (Fair Value of Acceptable Collateral). The issue exists as collateral is reported as the fair value of collateral pledged by a counterparty, or for central clearinghouses as the net positive variation margin received by the reporting entity.

Discussion with interested parties revealed this is a rare event that would occur in a series of unlikely adverse actions. NAIC staff concluded third-party derivative exposure through centrally cleared exchanges is appropriately captured in the existing disclosure requirements and in the Blanks. 

The item was disposed without statutory revision.

Ref #2019-41: Eliminating Financial Modeling Process

The SAPWG exposed revisions to eliminate the “financial modeling” process from SSAP No. 43R—Loan-backed and Structured Securities during the fall meeting. This item corresponds to a VOSTF proposed item and will not be acted upon by the SAPWG until after VOSTF makes its decision.

The current RMBS/CMBS modeling practices, financial modeling, is the only approach that still uses breakpoints to determine NAIC designations. In March 2019, the multi-step modeling process for modified filing exempt (MFE) securities was removed. With the elimination of the MFE approach, identical securities captured under that guidance now have identical NAIC designations.

The VOSTF decided to continue the financial modeling practice on May 14, 2020. The financial model output will be mapped to a specific NAIC Designation Category; for example, mid-point modifier D for NAIC Designation 1 and modifier B for NAIC Designations 2-5.

The proposal was disposed. A new agenda item will be proposed to reflect the new approach adopted by the VOSTF.


Comment deadline: May 29, 2020

Ref #2019-04: SSAP No. 32 – Investment Classification Project

Interested parties provided comments on an issue paper and substantial revisions to SSAP No. 32R – Preferred Stock that were exposed during the fall meeting. The revisions apply to the definitions, measurements, and impairment guidance for preferred stock pursuant to the investment classification project. 

Although interested parties substantially agreed with the objectives of the proposal, they provided additional comments on the issue paper. They proposed edits to the definitions of redeemable and perpetual preferred stocks, arguing the change would create a difference between the GAAP ASC 480 and NAIC guidance in multiple ways, and proposed edits to those definitions. NAIC staff agreed with the edits.

In addition, staff agreed with language regarding the fair value reporting being capped by any currently effective call price proposed by the interested parties. Interested parties asked for clarification around or removal of the term “qualifying” in paragraph 14, where it stated, “dividends on preferred stock shall be recorded as investment income for qualifying preferred stock on the ex-dividend date with a corresponding receivable to be extinguished upon dividend settlement.” Staff changed “qualifying” to “dividend eligible.” 

This proposal adds the investments in preferred stock of entities captured in SSAP No. 97 or SSAP No. 48 to the scope. Certain legal entities captured in SSAP No. 48 do not issue preferred stock in legal form but label those instruments as preferred units, interests, or shares instead. 

The working group exposed the issue paper and substantively-revised draft SSAP No. 32 with the changes proposed by interested parties with a January 1, 2021, effective date to allow the guidance to take effect at the start of a reporting year. 

Ref #2019-14: Attribution of Goodwill

During the summer and fall meetings, the SAPWG exposed revisions to SSAP 97 – Investments in Subsidiary, Controlled and Affiliated Entities to clarify that the “assignment” of goodwill is a disclosure element, with revisions to the disclosure requirements for downstream holding companies.

The revisions did not outline how the assignment should be made, but that it should be disclosed upon acquisition and not changed after that time. The revisions also changed the terminology from “allocation” to “assignment.” 

Interested parties had extensive comments regarding the attribution of goodwill, and recommended that “the disclosure of GAAP goodwill attributed to downstream SCAs of downstream holding companies focus on actual GAAP goodwill that was pushed down to the downstream SCAs and any statutory goodwill that occurred when the insurer is the acquirer, subject to the existing 10% admittance limitation as illustrated and discussed in the examples above.”

The working group replied that they believe interested parties misunderstood the changes and reiterated that the agenda item “does not necessarily pertain to pushdown accounting.” Therefore, the working group has proposed to specifically exclude “pushdown” goodwill until that issue is addressed. Edits to reflect this change were exposed.

Ref #2019-38: Financing Derivatives

The working group exposed revisions to SSAP No. 86—Derivatives to clarify the reporting of derivatives with financing premiums and to allow the present value of the derivative premium receivable (and payable) for financed derivatives to be factored into the counterparty risk assessment for life RBC.

Interested parties asked that the effective date be set as January 1, 2021, as it represents “a significant change to how certain companies account for derivatives and must be implemented in our investment systems prior to adoption.” Interested parties also indicated that they do not believe the assets and liabilities under the exposure meet the right offset criteria in SSAP 64—Offsetting and Netting of Assets and Liabilities

NAIC staff recommended incorporating the proposed edits from interested parties, involving the deletion of paragraph 19c and adoption of the exposed nonsubstantive revisions to SSAP No. 86—Derivatives with the suggested effective date of January 1, 2021.

Ref #2020-02: Accounting for Bond Tender Offers

Revisions to SSAP No. 26R – Bonds were exposed that clarify that the accounting and reporting of investment income and capital gain/loss, due to the early liquidation either through a call or a tender offer, shall be similarly applied. 

The revisions come after questions were raised around the accounting treatment for when a held bond is retired early through the acceptance of a “bond tender offer,” which occurs when the bond issuer repurchases some, or all, of a particular bond issuance prior to its scheduled maturity date. SSAP No. 26R—Bonds has guidance for the reporting and allocation of investment income and/or capital gain/loss associated with callable bonds, but guidance is not reflected for when a bond is retired early through a tender offer.

Called and tendered bonds are similar, but with a bond tender offer, the holder may elect to accept the offer; otherwise, the original terms of the bond are not modified.

Ref #2020-03: Enhanced Goodwill Disclosures

To gather additional goodwill information and clarify reporting on Schedule D, Part 6, Section 1 – Valuation of Shares of Subsidiary, Controlled and Affiliated Companies, nonsubstantive revisions to SSAP No. 68 – Business Combinations and Goodwill were exposed. 

A review of SCA Sub 2 filings found that many companies do not correctly calculate the amortization of goodwill.

The proposed disclosures will improve the validity and accuracy of numbers currently being reported and assist with the regulators’ review of reported assets not readily available for the payment of policyholder claims.

Exposed with a comment deadline of July 31, 2020

Ref #2019-21: SSAP No. 43R

The working group exposed a preliminary issue paper for initial assessment. NAIC staff will continue working with industry in discussing SSAP No. 43R investments.

NAIC staff said collateralized fund obligations (CFOs) are similar to collateralized debt obligations (CDOs). A CDO is a loan-backed security while a CFO is backed by equity interests (e.g., a Fund or Limited Liability Partnership). Although the CFO has bond-like cash flows and may receive credit rating from the NRSRO, the backing of the issued security is based on the equity performance of the underlying funds or equity interest.   

Deferred until the 2020 Summer National Meeting

Ref #2019-12: ASU 2014-17, Business Combinations, Pushdown Accounting

During the fall meeting, the SAPWG adopted an update clarifying that “goodwill resulting from the acquisition of an SCA by an insurance reporting entity that is reported on the SCA’s financial statements admissibility of goodwill resulting from the application of pushdown accounting, is limited in the aggregate to 10% of the acquiring entity’s capital.”  As a next step, the SAPWG exposed revisions to evaluate ASU 2014-17, Business Combinations – Pushdown Accounting for statutory accounting and requested comments. Comments pertaining to whether pushdown should be rejected, permitted for noninsurance entities, or permitted only for SEC-registrations was specifically requested.

Interested parties provided extensive feedback.

The working group recommended not taking any action on the item during the spring meeting and would like to hear additional comments from interested parties.

Ref #2019-34: Related Parties, Disclaimer of Affiliation and Variable Interest Entities

According to the meeting materials, “The intent of this agenda item is to clarify identification of related parties and affiliates in SSAP No. 25—Affiliates and Other Related Parties and to incorporate new disclosures to ensure regulators have the full picture of complicated business structures.”

The SAPWG outlined the following aspects they hoped to address via their revisions:

  • Clarify the identification of related parties and ensure that any related party identified under U.S. GAAP or SEC reporting requirements would be considered a related party under statutory accounting principles.
  • Clarify that non-controlling ownership over 10% results in a related party classification regardless of any disclaimer of control or disclaimer of affiliation.
  • Clarify the impact of a disclaimer of control or disclaimer of affiliate under SSAP. As detailed, such disclaimers impact holding company group allocation and reporting as an SCA under SSAP No. 97, but do not eliminate the classification as a “related party” and the disclosure of material transactions as required under SSAP No. 25.
  • Proposes rejection of several US GAAP standards addressing variable interest entities.

Interested parties shared extensive feedback on this item. They shared significant concerns that the proposal is not clear on its recommended changes to SSAP No. 25 and what will be required based on the expanded definition of a related party.
NAIC staff recommended the working group direct staff to work with interested parties to update the proposed revisions to SSAP No. 25.

Ref #2020-01: Update/Remove References to SVO Listings

The VOSTF referred two proposed amendments to the P&P Manual

  • Rename “The U.S. Direct Obligations/Full Faith and Credit Exempt List” to “NAIC U.S. Government Money Market Fund List”
  • Discontinue the “NAIC Bond Fund List”

Staff recommended exposing nonsubstantive revisions to SSAP No. 26R – Bonds and SSAP No. 30R – Unaffiliated Common Stock to eliminate references to the NAIC Bond Fund List and add a reference to “NAIC Fixed Income-Like SEC Registered Funds List” in SSAP No. 30R.

The working group won’t take final action or determine an effective date until revisions have been adopted by VOSTF.
Ref # 2016-20: Credit Losses

NAIC staff continues to monitor the FASB discussions involving CECL. While large SEC filers are required to follow CECL in 2020, small SEC reporting companies, financial institutions, and other public business entities are granted a reprieve until 2023.

Valuation of Securities Task Force


Consider Adoption of an Updated Amendment to the P&P Manual of Instructions to Map Financial Modeled RMBS/CMBS Security NAIC Designations to NAIC Designations Categories

VOSTF exposed a draft amendment to the P&P Manual following a February interim meeting. The amendment retains the Financial Modeling and book/adjusted carrying value price ranges for modeled residential mortgage-back securities and commercial mortgage-backed securities and adds mapping instructions to produce a NAIC designation category for insurers to report.

This is a temporary measure until new risk-based capital factors are adopted. There would be no regulatory capital impact from the change. 

This item was adopted with a friendly amendment for financially modeled 43R securities with zero losses and will be mapped to 1.A instead of 1.D.

Consider Adoption of a Proposed Amendment to the P&P Manual for Principal Protected Notes with an Updated Definition and Instructions

NAIC staff began working with industry members last fall on a definition for principal protected securities. Staff provided a recommended definition and suggested adding a new section in the P&P Manual that provides examples. 

The proposed definition states: Principal Protected Securities (PPS) are a type of security that repackages one or more underlying investments and for which contractually promised payments according to a fixed schedule are satisfied by proceeds from an underlying bond(s) but for which the repackaged security generates potential additional returns as described in the detail criteria for PPS, along with examples, in Part Three of this Manual.

The amendment also states investments in PPS must be submitted to the SVO for review because they may possess other non-payment risks that the SVO must assess under its subscript S authority.

An interested party said they appreciate the transparency on the methodology SVO uses, and it will give insurers better understanding for capital planning. SVO Director Charles Therriault said he is happy to work with the interested party on the methodology. 

This proposal was adopted effective January 1, 2021, with a friendly amendment. The amendment states the existing securities need to be filed with the SVO by July 1, 2021. 

Discuss Temporarily Extending Insurer’s 2020 Initial Filing Deadline from 120-days to 165-days for Newly Acquired or Securities in Transition

Due to COVID-19, the NAIC understands insurers may need more time to file newly acquired securities or the securities in transition. The securities can be reported with a Z designation within 160 days instead of 120 days.

This proposal was adopted.

Receive IAO Issue Paper on Staff Concerns about Bespoke Securities and Reliance on CRP Ratings

Staff at the IAO expressed concerns to the VOSTF about bespoke securities. The private nature of bespoke securities means they are not subject to or constrained by market forces and competition, and therefore their visible characteristics may substantially underrepresent actual risks, according to the group. 

In a previous meeting, members of the IAO and VOSTF agreed over concerns that the NAIC relied too heavily on credit rating provider ratings to assess investment risk for regulatory purposes. The IAO was tasked with developing a summary of the issues related to bespoke securities and coming up with remediation. 

Bespoke securities are often private securities, and there is no available third-party data sufficient to identify them. A CRP rating incorrectly reflects how NAIC guidance would treat or view that security. As the methodologies being used by the rating agency may not be appropriate for the assessment of investment risk for statutory purposes, the SVO would need to be given additional authority and discretion from the task force to manage and administer their appropriate use for NAIC purposes. 

NAIC staff also said the SEC noticed some CRPs have changed their rating criteria in order to gain more business and increase their market shares. The SVO does not take part in the structuring of securities transactions for issuers nor have competitive pressures to obtain business from the issuers.

The IAO submitted an issue paper to the VOSTF outlining concerns and recommendations. For next steps, the IAO recommended sharing the issue paper with the Financial Condition (E) Committee and continuing this discussion next year.

The SVO recommended the insurer provide legal agreements for the SVO’s determination if the security and/or the CRP rating were appropriate for NAIC purposes. If the SVO determined the security is unacceptable, the SVO would work with the appropriate regulatory groups to address any policy matters. The security would need to be filed with the SVO for a complete analysis if the CRP rating was not appropriate. The SVO also suggested the use of ARO ratings should be highly selective and incorporate both supplemental and alternative risk assessment benchmarks. 

The SVO pointed out on 43R securities that price points are used instead of CRP ratings. It was mentioned that the NAIC has better methodology for regulatory purposes, and CRP ratings do not work that well for this purpose. 

This item was exposed with a 90-day comment period. 

Receive a Proposed Amendment to the P&P Manual with Updated Instructions for Non-conforming Credit Tenant Loan (CTL) Transactions that Relied Upon Credit Ratings

SVO staff provided a recommendation to the VOSTF that it include additional guidance in the policy on “The Use of Credit Ratings of NRSROS In NAIC Processes” to clarify that there should be no presumption of permanent eligibility to receive an NAIC designation based upon an NAIC CRP rating. Any parties that would like to know the probable regulatory treatment and filing exempt eligibility of a security are encouraged to utilize the Regulatory Treatment Analysis Service (RTAS) to initiate such a regulatory review and interpretation by the SVO or SSG.

The current policy states the NAIC’s sole objective in obtaining and using publicly available credit ratings is because of limited regulatory resources, but the NAIC is not endorsing the credit rating or analytical product of any credit rating provider. 

This proposal states the insurers may file the non-conforming CTL that was owned prior to January 1, 2020, and which have CRP ratings with the SVO. The SVO may assign a NAIC Designation if the risks posed by the non-conforming CTL are adequately mitigated and the non-conforming CTL has characteristics of a bond. A non-conforming CTL shall not be reported as a bond if it was acquired after December 31, 2019.

The SVO also recommended the VOSTF refer the proposed amendment to the SAPWG and request the working group affirm that they would consider these non-conforming CTLs to have the characteristics of a bond if assigned an NAIC designation by the SVO staff.

This item was exposed with a 30-day comment period.

Receive a Proposed Amendment to the P&P Manual for Technical NAIC Designation Category Corrections

The SVO recommended the VOSTF update guidance in the P&P Manual to identify several policy-based assignments of NAIC designations that did not receive a mapping when NAIC designation categories were introduced in 2018, e.g. certificates of deposit reported as long-term bonds, U.S. government securities, SVO Identified Bond Mutual Funds and U.S. domiciled exchanges that are assigned a NAIC Designation Category of NAIC 1.A. Securities with an insurer’s self-assigned NAIC 5GI designation are assigned a NAIC designation category of NAIC 5.B GI.

This item was exposed with a 30-day comment period.

Hear a Report from the Structured Securities Group (SSG) on RMBS and CMBS

COVID-19 related government mandated closures resulted in non-payment of commercial and residential mortgages. This is not typical delinquency and is expected to be temporary while some delinquencies may be permanent. 

Regulators, including the NAIC, have responded by providing regulatory flexibility to avoid making the situation worse. 

The SSG has been asked how COVID-19 will affect RMBS and CMBS year-end modelling. People realize they can work from home effectively during the shutdown. SSG Director Eric Kolchinsky referenced a news report on the real estate situation in Manhattan and office space in high-price areas could go down because people are looking for a cheaper alternative. 
Kolchinsky said the VOSTF has exposed a set of RMBS economic scenarios in 2017, but they never developed CMBS portion. 

The SSG will continue to monitor RMBS/CMBS holdings and will have a better understanding of the permanence of the effects of the COVID-19 non-payments. It will provide the task force with recommendations in the third quarter and intermediate results, “mid-year,” analysis in early fall. 

Blanks Working Group


Effective December 31, 2020

2019-28BWG – Modify the instruction for Supplemental Investment Risk Interrogatories (SIRI) Lines 13.02 through 13.11 clarifying when to identify the actual equity interests within a fund and aggregate those equity interests for determination of the 10 largest equity interests

This item clarifies when to identify the actual equity interests within a fund, including an exchange-traded fund (ETF) or a mutual fund, and aggregate those equity interests to determine the 10 largest equity interests. The proposal modifies the instruction for SIRI lines 13.02 through 13.11 to indicate that the company must look through a non-diversified fund to aggregate exposures in the top 10 equity interests, but a look through is not required with diversified funds. It also clarifies any equity fund that qualifies individually as one of the largest equity interests should be included in the top 10 list.

This item was adopted by SAPWG at the fall meeting. 

2019-29BWG – Modify the instruction and blank for SIRI question 14.01

The SAPWG and BWG adopted the disclosure of the ten largest fund managers at the 2019 Spring National Meeting. It clarifies that interrogatories 14.06 through 14.15 in the blank need to be completed regardless of the answer to SIRI question 14.01.

2020-03BWG Modified – Modify the instruction and illustration for 13(11) to the Notes to Financial Statement. Change the numbering from 1 through 13 to A through M to reflect the disclosure addition for SSAP No. 41R – Surplus Notes being adopted by SAPWG and correct the instruction

This item reflects the changes adopted by the SAPWG (Ref#2019-37) by changing the numbering from 1 through 13 to A through M to reflect the disclosure addition for SSAP No. 41R – Surplus Notes. It emphasizes the percentage of interest payments offset shall be reported.

2020-08BWG Modified – Add a disclosure instruction for 10C to the Notes to Financial Statement for related party transactions not captured on Schedule Y to reflect the disclosure addition for SSAP No. 25 – Affiliates and Other Related Parties being adopted by the SAPWG. Combine existing 10C into 10B instructions and illustration narrative.

The SAPWG adopted revisions (Ref#2019-33) to SSAP No. 25 – Affiliates and Other Related Parties that would clarify identification of related parties and affiliates and incorporate disclosures to ensure regulators have the full picture of complicated business structures. The item was adopted with editorial changes recommended by interested parties. 

2020-13BWG Modified - Remove Line 24.04 from the General Interrogatories, Part 1 and renumber remaining lines for Interrogatory Question 24. Modify Lines 24.05 and 24.06 to require reporting amounts for conforming and non-conforming collateral programs.

The answers to Interrogatory Questions 24.05 and 24.06 depend on the answer to Question 24.04. This works for companies that have all conforming or non-conforming collateral programs. If the answer is both, only the collateral amount for the conforming program is captured. This proposal removes Line 24.04 and requires companies with both conforming and non-conforming collateral programs to capture the collateral amount for both.

2020-17BWG – Adjust the asset valuation reserve (AVR) presentation to include separate lines for each of the expanded bond designation categories.

The BWG and SVO adopted the 20 bond designations for 2020 reporting, which will flow into the RBC, but will not include factors. An impact analysis will need to be done to confirm the new factors for the 20 designations for next year. In the meantime, the current factors for designations 1 through 6 will remain in the RBC. 

This applies the same expanded presentation to the AVR Default Component Report.

2020-18BWG Modified – Clarify the instructions to indicate which funds reported on Schedule D, Part 2, Section 2 (annual filing) and Schedules D, Part 3 and 4 (quarterly filing) must have NAIC Designation, NAIC Designation Modifier and SVO Administrative Symbol.

Modify the reference to the SVO P&P Manual found in the Blanks instructions.

The instructions on Schedule D, Part 2, Section 2 were modified to include securities reported on Line 9599999 (Unit Investment Funds) and 9699999 (Closed-End Funds) to provide the appropriate NAIC Designation, Modifier, and SVO Administrative Symbol assigned by the SVO and published in AVS+ per SVO P&P Manual instructions. NAIC Designation and Designation Modifier should not be provided for securities reported on these lines that have not been assigned one by the SVO. A list of funds is published on the SVO website. 

This item modified the reference of SVO Identified Funds to the SVO P&P Manual found in Schedule D Part 1; Schedule D Part 2 Section 2, Summary Investment Schedule; and Schedule E Part 2 (annual and quarterly filings) Investment Schedules General Instructions.

2020-19BWG Modified – Add a code of “%” to the code column for all investments which have been reported Schedule DA, Part 1 and Schedule E, Part 2 for more than one consecutive year. Add certification to the General Interrogatories, Part 1 inclusion of these investments on Schedule DA, Part 1 and Schedule E, Part 2.

The SAPWG adopted two items (2019-20 and 2019-42) that are related to this change. The purpose of this change is to identify when cash equivalents and/or short-term investments stay on the applicable investment schedule for more than one reporting period with a code of “%”. It adds a new question to the General Interrogatories to certify if the investments on Schedule DA Part 1 and Schedule E Part 2, met the criteria: 

  • The investment can be liquidated by the insurer on the maturity date 
  • The investment was acquired from a nonrelated party at an arm-length 
  • The investment was acquired from a related party but the insurer has completed robust re-underwriting of the transaction that will be available for regulator review. 

Investments that don’t meet these criteria will be recorded as long-term investments.

As SAPWG will do the editorial change that includes cash equivalents in paragraph 16e of SSAP No. 2R, the working group recommended to adopt this agenda item pending SAPWG adoption of that editorial change.

2020-20BWG Modified – For Schedule D, Part 1, add code “10” to Column 26 – Collateral Type for ground lease financing. Renumber “Other” code to 11

The VOSTF adopted an amendment to the P&P Manual during the fall 2019 meeting to add ground lease financing transactions as a newly defined asset class. This was effective January 1, 2020, and the amendment was sent to the SAPWG for consideration. 

Ground lease financing is defined as “real estate loans secured by the obligation to pay debt service by means of rental payments of subleased property where a long-term ground lease was issued in which the lease intends significant land development and the subleasing of such property to other long-term tenants.”

This item was adopted with minor corrections for reference numbers on Form A.

2020-21BWG Modified – Add new Line 4.05 for valuation allowance for mortgage loans to the Summary Investment Schedule and renumber existing Line 4.05 to 4.06. Modify the instructions to include a crosscheck for new Line 4.05 back to Schedule B – Verification Between years. Clarify the instructions for 4.01 through 4.04 to explicitly show crosschecking to Column 8 of Schedule B, Part 1.

This schedule addresses the fact that the amount reported on Schedule B, Part 1, Column 8 excludes the valuation allowance, even though the total reported for mortgage loans in the Summary Investment Schedule must tie to the asset page, and that page includes the valuation allowance. 

It reflects changes adopted by the SAPWG (Ref#2020-07) in May 2020 by adding new line 4.05 to the Summary Investment Schedule to prevent crosscheck errors.


2020-26BWG - Add a new Column 5 to Schedule DB, Part D, Section 1 and renumber the remaining columns. Add instruction for the new Column 5, add the column reference to Column 7, and adjust other column references in crosschecks. Correct column references for this schedule on the Liability Page, Asset Page and Schedule DB Verification. Modify instruction language for the disclosure Note 8A(8)

This item proposes to reflect changes concurrently exposed by SAPWG (Ref#2019-38) in May 2020 to SSAP No. 86 by adding a new column for Present Value of Financing Premium on Schedule DB Part D Section 1.

It was exposed with a proposed effective date of March 31, 2021.


2020-02BWG Modified – Modify the instruction and illustration for Note 10L to reflect the disclosure changes for SSAP No. 97 – Investments in Subsidiary, Controlled, and Affiliated Entities being adopted by SAPWG

This proposal was exposed with changes adopted by the SAPWG (Ref#2019-32) in March 2020 to SSAP No. 97 – Investments in Subsidiary, Controlled, and Affiliated Entities to emphasize that a look-through is permitted through more than one downstream holding company if each look-through entity complies with the requirements in SSAP No. 97.

It is deferred until the SAPWG adopts agenda item 2019-14, which was exposed with a comment deadline of May 29, 2020. 

2020-22BWG Modified - Modify the instructions and illustration for Note 3A and a new Note 3E with instructions and illustrations to be data captured. Modify the blank and instructions for Schedule D, Part 6, Sections 1 and 2.

This proposed modification to the Notes to Financial Statement and Schedule D, Part 6 Section 1 reflects changes being adopted for SSAP No. 68 – Business Combinations and Goodwill and SSAP No. 97 – Investments in Subsidiary, Controlled and Affiliated Entities by the SAPWG.

A new note, 3E, would be created for subcomponents and calculation of Adjusted Surplus and Total Admitted Goodwill. Schedule D Part 6 Section 1, Column 7 is removed and columns after that are renumbered.

The item is deferred until the SAPWG adopts agenda item 2020-03, which was exposed with a comment deadline of May 29, 2020. 


Electronic Blanks and Instructions Publications

NAIC staff announced that digital copies of Blanks and Schedule Instructions will be available (TBD) through Bookshelf.

​Capital Adequacy Task Force

Ref #2019-16-CA

The Capital Adequacy Task Force adopted changes to the 2020 Annual Statement Blanks on April 30, 2020. The Blanks Working Group and the Securities Valuation Office have adopted the 20 bond designations for 2020 reporting. The reported designation categories will flow into the RBC. The current factor for designations 1-6 will remain until an impact analysis can be done to confirm the new factors for the 20 designation categories. There are also other changes not related to the new 20 designation categories: 

  • Hybrid securities are removed from LR005 – Unaffiliated Preferred and Common Stock, LR010 - Asset Concentration Factor, LR030 – Calculation of Tax Effect for Life RBC, Calculation of Authorized Control Level RBC
  • Hybrid securities are added to XR011 – Asset Concentration and XR023 - Calculation of Total RBC after Covariance
  • “Unaffiliated” is added to line 35 Common Stock on XR006 - Off-Balance Sheet Security Lending Collateral and Schedule DL, Part 1 Assets

RBC Reports are modified for 2020 annual reporting due to 20 new designation categories:

  • XR006 – Off-Balance Sheet Security Lending Collateral and Schedule DL, Part 1 Assets
  • XR007.1 – Fixed Income Assets
  • XR011 – Asset Concentration
  • PR006 – Bonds
  • PR011 – Asset Concentration
  • PR015 - Off-Balance Sheet Collateral and Schedule DL, Part 1 Assets 
  • LR002 – Bonds
  • LR010 – Asset Concentration Factor
  • LR014 – Hedged Asset Bond Schedule
  • LR018 - Off-Balance Sheet Collateral
This Content is Locked: Complete the form to the right to read more. Read More