NAIC September Call Notes

Thoughtware Alert Published: Oct 14, 2020
Connie Jasper Woodroof, CJW Associates
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Before overviewing the meeting activity for the last half of September, it’s important to note that since the August NAIC National Meeting, some NAIC groups have been holding their conference calls via webinar instead of the normal NAIC conference call service. While this might sound like an improvement, for the most part it hasn’t been. Normally during the webinar, we don’t see any of the meeting participants. A couple of groups have used the video capabilities on a limited basis, which is a slight improvement. The groups do project documents to view, but they’re the same documents that are distributed prior to the meeting and available to everyone. Downloading and viewing those documents on the computer during the meeting is much easier than trying to view them through the webinar. However, there’s one definite improvement regarding the webinars—there has been no charge for them. When the conference call service provider is used, the industry pays to participate or listen to the call. 

BKD is experimenting with how to present NAIC meeting activity effectively; consequently, the format is changing for now. Instead of reporting each call separately, calls will be summarized monthly and posted to the website. If something earth-shattering happens that needs attention sooner rather than later, an email blast will be sent to call attention to the situation. The following is a summary of NAIC conference call activity for the last half of September. 

Life/Fraternal Risk-Based Capital (L/F RBC) Working Group – September 25, 2020

Because the person who was supposed to attend this conference call forgot about it, this summary mainly addresses documents that were released for exposure—one 2020 guidance document and a revision for the 2021 formula instructions. The good news is the only other item that was listed on the agenda was a discussion of the groups’ working agenda. The exposures will affect only the L/F RBC formula, not any of the other RBC formulas. The 2020 guidance document, if adopted, provides information addressing mortgage loans reported in both Schedule B and Schedule BA of the Life/Fraternal Annual Statement. The guidance provides additional instructions for handling construction loans, origination date, valuation date, property value, loans 90 days past due, contemporaneous property values, and net operating income for 2020. The proposed instructional change would be effective for 2021 and addresses the net operating income reporting of the mortgage loans. Both exposures can be found on the L/F RBC Working Group’s website. The comment periods ended Wednesday, October 7, for both. 

Group Capital Calculation Working Group (GCCWG) – September 29, 2020

The GCCWG has been holding two types of calls—those dedicated to finalizing the Group Capital Calculation and those dedicated to crafting revisions to the NAIC’s Holding Company Models. This call covered calculation issues. NAIC staff provided a summary of revisions that were made since the last exposure period, covering some of the more material revisions in detail. One of the primary areas of revision was the definitions of financial entities. Remember, these revisions are a combination of industry suggestions and NAIC staff and regulator input, coupled with regulator decision. Another area of discussion was materiality of risk principles standards, which will help determine which SCA companies’ operations are material enough to be included in the group calculation. A revised document was then re-exposed for a two-week period ended October 15. 

Valuation of Securities Task Force (VOSTF) – September 29, 2020

The VOSTF began by revising its 2021 charges to include a new item at the request of the Financial Conditions E Committee. Under the new charge, the VOSTF is to implement policies to oversee NAIC staff administration of rating agency ratings used in the NAIC reporting process. VOSTF adopted a revision to the Investment Analysis Office’s Manual (Manual) regarding the treatment of exchange-traded funds (ETF) that hold a portfolio of both bonds and preferred stocks. Currently, the Manual’s policies address bond ETFs separately from preferred stock ETFs. The new policy allows for a listing of ETFs that consist of both bonds and preferred stock; however, the Securities Valuation Office will still produce two separate lists of ETFs. The Task Force decided further work was needed on the Working Capital Finance Notes’ revision currently in progress and asked for further collaboration from industry. VOSTF hopes a new proposal package can be prepared for exposure at the next meeting. The meeting ended with the Task Force deciding to delay action on a proposed Manual amendment addressing nonconforming credit tenant loan transaction. The topic will be revisited after the Statutory Accounting Principles Working Group finishes their work on the issue. 

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