May is the month where the statutory annual statement revisions need to be finalized for the current year-end reporting. Accordingly, both the Statutory Accounting Principles Working Group (SAPWG) and the Blanks Working Group (BWG) held meetings to accomplish that goal. But those were not the only accounting/reporting meetings that occurred.
Valuation of Securities Task Force (VOSTF) – May 2, 2024
The following actions were taken regarding revisions to the Purposes and Procedures Manual of the NAIC’s Investment Analysis Office (P&P Manual).
| Subject | Disposition |
|---|---|
| Updates abbreviation for U.S. government agency and other government obligations. | Adopted. Will appear in 2024 P&P Manual. |
| Technical amendments regarding subsidiary, controlled and affiliated, and related party bond or preferred stock investments. | Adopted. Will appear in 2024 P&P Manual. |
| Permits NAIC designations for short-term asset-backed securities (ABSs). | Exposed for comment through June 2. |
Beginning January 1, 2025, ABSs can no longer be reported on Schedule E – Part 2 and/or Schedule DA. Instead, all will need to be reported on the new Schedule D – Part 1 – Section 2. Previously, short-term or cash equivalent ABSs did not need to report an NAIC designation. For 2025 reporting changes, the short-term or cash equivalent ABSs will need to follow the guidance in the P&P Manual for the assignment of an NAIC designation and NAIC designation category.
| Subject | Disposition |
|---|---|
| Changes effective date for the financial modeling of collateralized loan obligations from year-end 2024 to year-end 2025. | Exposed for comment through June 2. |
| Addition of Spain as a jurisdiction eligible for counterparty exposure netting. | Exposed for comment through June 2. |
| Clarifies self-assigning of an NAIC 6* designation. | Exposed for comment through June 2. |
| Revises the list of Securities Valuation Office processes. | Exposed for comment through June 2. |
All items can be found on the VOSTF webpage.
Restructuring Mechanisms Working Group, via email May 13, 2024
The Working Group re-exposed for comment an updated Best Practices Procedures for IBT/Corporate Divisions as well as the Restructuring Mechanisms White Paper through June 14, 2024. Revisions to both are the result of the previous 2023 exposure periods. Both documents can be found on the Working Group’s webpage.
SAPWG – May 15, 2024
The main goals of this meeting were to finalize items needing to be addressed in the BWG meeting. Mission accomplished.
| Reference # | Subject | Disposition |
|---|---|---|
| 2023-16 | Revises Schedule BA reporting categories and definitions for debt securities that do not qualify as bonds and residuals. | Adopted, effective January 1, 2025. |
Although this item did not result in any SSAP changes, it does change reporting categories in Schedule BA of the 2025 statutory statement. A few minor revisions were made to the proposal before it was adopted. Those changes will be communicated to the BWG prior to its meeting.
| Reference # | Subject | Disposition |
|---|---|---|
| 2023-28 | Expands collateral loan reporting categories in Schedule BA. | Deferred. |
The exposure period for this proposal brought forth a lot of comments. As a result, staff was directed to prepare a memo to the BWG to incorporate instructional changes to the Asset Valuation Reserve (AVR) allowing collateral loans backed by mortgages to flow through the AVR as an “Other Invested Asset with Underlying Characteristics of Mortgage Loans.” This is considered an interim step while further consideration is given to the reporting of collateral loans. However, the effectiveness of the statement change would be contingent upon the Life Risk-Based Capital (RBC) Working Group making a related editorial change to its formula to prevent the double counting of collateral loans backed by mortgage loans. The Life RBC group has exposed that change for comment. SAPWG is sponsoring a statement revision that would expand the reporting categories for collateral loans in Schedule BA.
| Reference # | Subject | Disposition |
|---|---|---|
| 2024-13 | Deletes disclosures for the transitional reinsurance and risk corridor programs under SSAP No. 107 – Risk-Sharing Provisions of the Affordable Care Act, as those programs have expired. | Adopted, effective year-end 2024. |
| 2019-21 | Principles-Based Bond Project Issue Paper. | Exposed for comment through June 21. |
RBC Investment Risk and Analysis Working Group – May 22, 2024
The only item listed on the agenda was the consideration of additional information on determining the interim factor for residual tranches. The topic had previously been discussed, but no decision had been made regarding industry’s request for a one-year delay in revising the current RBC factor being used for residual tranches. The chair had provided industry with a detailed listing of requirements to be included in the delay request in order to be considered. Two comment letters were received, with only one actually providing a possible path for consideration. The Working Group ended up exposing for comment proposal 2024-19-1, which would result in two different classifications of residual tranches with two different factors. Included with the exposure was a previous presentation from the NAIC’s Structured Securities Group with the Working Group requesting comment on which items should be included in the proposed category of exempted residual tranches and interest and which should not. The comment period ends June 13, 2024.
BWG – May 23, 2024
The goal of this meeting was to finalize the 2024 Annual Statement reporting formats and instructions. In addition, two of the adopted proposals were for the new bond reporting and will not be effective until January 1, 2025.
| Reference # | Subject | Disposition |
|---|---|---|
| 2023-28 | Adds categories and instructions for reporting debt securities that do not qualify as bonds on Schedule BA. (All statements.) | Adopted effective January 1, 2025. |
| 2024-01 | Updates the Investment Schedules General Instructions to identify that common and preferred stock residual interests should be reported on Schedule BA. (All statements.) | Adopted effective year-end 2024. |
| 2024-02 | Removes reporting categories from Schedule DA, Part 1, and Schedule E, Part 2 for investments that are no longer included in those schedules. Adds clarifying instructions on what should be included in Other Short‐Term and Other Cash Equivalent categories. (All statements.) | Adopted effective January 1, 2025. |
| 2024-03 | Revises instructions for General Interrogatory 35 to clarify what should be included. (All statements.) | Adopted effective year-end 2024. |
| 2024-04 | Adds clarifying language to the VM‐20 supplement to include separate accounts where applicable. (Life/Fraternal statement.) | Adopted effective year-end 2024. |
| 2024-05 | Clarifies inclusion of all investment advisors with discretion to make investment decisions, including subadvisors to annual General Interrogatory 29.05 (quarterly General Interrogatory 17.5). (All statements.) | Adopted effective year-end 2024. |
| 2025-06 | Changes to the requirement to send actuary qualification documentation to the board of directors only at the initial appointment. (Property/Casualty and Title statements.) | Adopted effective year-end 2024. |
| 2025-07 | Updates to Note 5S(A) – Investments for Net Negative (Disallowed) Interest Maintenance Reserve (IMR) for separate accounts and adds a new general interrogatory for a company attestation for separate accounts. (All statements.) | Adopted effective year-end 2024. |
Because the above item was incorporated into Note to Financials No. 5, it was adopted for all statement types. However, Property/Casualty, Health, and Title companies should mark that Note as not applicable and respond to the general interrogatory with the N/A response.
| Reference # | Subject | Disposition |
|---|---|---|
| 2024-08 | Revises the IMR and AVR instructions for specific allocation guidance for NAIC designation changes for debt securities (excluding LBSS), mortgage loans, and perpetual preferred stocks. (Life/Fraternal statement.) | Adopted effective year-end 2024. |
The intent of the above revisions is to stop the allocation of non-interest related losses to the IMR. It clarifies changing of the NAIC designation time measurement and incorporates new guidelines for mortgage loan gains/losses. Perhaps one of the most substantial revisions is the new language for debt securities and preferred stock indicating that IMR/AVR gain/loss determination is not necessarily based on the NAIC designation at the time of sale. If between the purchase and sale date an acute credit event occurs that has not yet been reflected by NAIC approved credit rating providers ratings, the gain/loss is not to be included in the IMR, as the sale is credit related, not interest related.
| Reference # | Subject | Disposition |
|---|---|---|
| 2024-09 | Adds a note (5T) to the Notes to Financials to report the aggregate collateral loans by qualifying investment collateral. (All statements.) | Adopted effective year-end 2024. |
| 2024-10 | Removes disclosure of the transitional reinsurance program and the risk corridors program from Note 24E in the Notes to Financials (Note 24F for Property/Casualty). (All statements.) | Adopted effective year-end 2024. |
| 2024-11 | Modifications update the annual and quarterly reporting instructions for the new market tax credit changes adopted by SAPWG. | Deferred for further discussion with a comment period ending July 8. |
| 2024-12 | Revises the quarterly investments schedules and instructions for 2025 reporting. | Exposed for comment through July 8. |
As improbable as it sounds, when the NAIC adopted the proposals revising the annual investment schedules resulting from the bond definition project, it forgot to incorporate the needed changes to the 2025 quarterly investment schedules. This proposal corrects that oversight.
Under the agenda topic of “Any other matters,” the chair mentioned that future discussions may need to take place regarding the expanded Schedule BA reporting. In fact, the hint was there may need to be more than one section for Schedule BA – Part 1 reporting incorporating a new format structure for collateral loans. Time will tell. The BWG chair, Pat Gosselin of New Hampshire, announced her upcoming retirement and that Debbie Doggett of Missouri will be taking her place as chair.
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