The Blanks Working Group (BWG) of the NAIC held a conference call March 16, 2021. The following updates are from that meeting.
Receive Memorandum from the Valuation of Securities Task Force (VOSTF)
BWG received a memorandum from the VOSTF that the new SVO Administrative Symbol “FS” has been added to identify non-legacy security financially modeled retail mortgage-back securities (RMBS) and commercial mortgage-backed securities (CMBS) that are closed on or after January 1, 2013, with SSG assigned as the NAIC Designation Category. This new administrative symbol will be added to the “Valid Designation, Designation Modifier and Administrative Symbol” list and posted on BWG website.
IAO staff planned to provide a single NAIC Designation for all modeled RMBS/CMBS in 2019 but the VOSTF decided to defer this change in February 2020 because industry expressed concerns over the risk-based capital (RBC) impact. Due to the pandemic impact in 2020, some securities no longer qualified as being zero-loss under more conservative scenarios and ended up getting a lower NAIC Designation for 2020 year-end because they were held at a significant premium (i.e., high book adjusted carrying value) in this low interest rate environment and price break points were applied.
During the VOSTF meeting on December 18, 2020, industry agreed with the IAO staff that the mechanics of the price break points were causing some modeled RMBS/CMBS with strong credit to be reported at a lower NAIC Designation, and not because of their credit risk. Instead of getting rid of the price breakpoints process for all modeled RMBS/CMBS, the IAO staff proposes to assign a single NAIC Designation and NAIC Designation Category for all non-legacy financially modeled RMBS/CMBS that closed on or after January 1, 2013. The single NAIC Designation assigned by SSG does not depend on the insurer’s book/adjusted carrying value of each RMBS or CMBS. Legacy financially modeled RMBS/CMBS will remain getting breakpoint prices for NAIC Designation calculation which will then be mapped to the mid-point modifier.
Adopted Items Effective 2020 Annual (Unless Stated Otherwise)
Expand the number of characters used from seven to ten in the investment line categories for Schedules D, DA, DL and E excluding Schedule D, Part 6 (Sections 1 and 2) and Schedule E (Part 1 and 3). Add line categories for Unaffiliated Certificates of Deposit and Exchange Traded Funds. Split the line categories for Mutual Funds, Investment Unit Trusts and Closed-End Funds into lines indicating if the fund has been assigned a designation by the Securities Valuation Office (SVO) or not. Make changes to Summary Investment Schedule, Summary by Country and Schedule D, Part 1A (Sections 1 and 2) to reflect the additional line categories.
A proposal was made to change the line number size to accommodate more line categories and to allow for room in the numbering scheme for Schedules D, DA, DL and E. The change allows additional lines to be added without disrupting the line numbering in the future. The proposal also addresses previously raised crosscheck issues and reporting questions.
The adopted proposal:
- Expands the number of characters used from seven to ten in the investment line categories for Schedules D, DA, DL and E, excluding Schedule D, Part 6 (Sections 1 and 2) and Schedule E (Part 1 and 3).
- Removes Bond Mutual Funds from SVO Identified Funds Category
- Adds line categories for Unaffiliated Certificates of Deposit and Exchange Traded Funds.
- Splits the line categories for Mutual Funds, Investment Unit Trusts and Closed-End Funds into lines indicating if the fund has been assigned a designation by the SVO or not.
- Removes code “$” for Certificates of Deposits under the FDIC limit.
- Makes changes to the Summary Investment Schedule, Summary by Country and Schedule D, Part 1A (Sections 1 and 2) to reflect the additional line categories.
This item is effective for 2022 quarterly reporting.
Modify the General Schedules Investment Instructions and Schedule DB General Instructions to reflect treatment of publicly traded stock warrants as being in the scope of SSAP No. 30R—Unaffiliated Common Stock or SSAP No. 32R—Preferred Stock and reporting as common and preferred stock (SAPWG 2020-33).
Blanks adopted a proposal to include publicly traded preferred stock warrants captured in the scope of SSAP No. 32R in the “Industrial and Miscellaneous Unaffiliated” category on Schedule D and those captured in the scope of SSAP No. 30R in the same category on Schedule D. It excludes publicly traded stock warrants captured in either scope of SSAP No. 30R or 32R from Schedule DB.
Add a new Schedule Y, Part 3 to capture all entities with ownership greater than 10%, the ultimate controlling parties of those owners and other entities that the ultimate controlling party controls (SAPWG 2019-34).
This proposal was adopted to reflect disclosure changes adopted by the SAPWG for SSAP No. 25—Affiliates and Other Related Parties (Ref #2019-34) regarding disclosure of owner(s), its ultimate controlling party, and other entities the ultimate controlling party controls. It adds a new Schedule Y, Part 3 to capture all entities with ownership great than 10%, the ultimate controlling parties of those owners and other entities that the ultimate controlling party controls.
Schedule BA Part 1 Column 7 and Schedule BA Part 2 Column 6 “NAIC Designation, NAIC Designation Modifier and SVO Administrative Symbol”
This item clarifies that lines 07, 08, 15, 16, and 45 are expected to have NAIC Designation Category with Administrative Symbol but the rest of lines may be completed if the Schedule BA investments are assigned NAIC Designation Categories by the SVO or rated by an NAIC credit rating provider. It removed the paragraph stating the field should be left blank if the investments have not been assigned an NAIC Designation by the SVO.
The change on Schedule BA Part 1 is effectively for 2021 annual reporting whereas the change on Schedule BA Part 2 is effective for 2021 quarterly reporting.
Exposed Item with Comment Deadline of April 27, 2021
Modify the instructions for Note 17B(4)b1(a) – Sale, Transfer and Servicing of Financial Assets and Extinguishments of Liabilities and add a table to the illustrations to data capture the disclosure (SAPWG 2021-03).
Blanks exposed a proposal to modify the instructions for Note 17B(4)b1(a) and add a table to the illustrations to data capture the disclosure. This proposal reflects disclosure changes adopted by the SAPWG.