1. NAIC Investment Accounting Updates You Need to Know: VOSTF, RBC, BWG
Sabrina Wilson, Clearwater Analytics
NAIC Investment Accounting Updates You Need to Know: VOSTF, RBC, BWG

2. Agenda Valuation of Securities Task Force
Investment Risk-Based Capital Working Group
Blanks Working Group

3. Valuation of Securities Task Force
VOSTF
Valuation of Securities Task Force

4. Adopted Items New Administrative Symbols for Designation YE and IF
Effective December 31, 2018*
*except where noted
New Administrative Symbols for Designation YE and IF
Securities the SVO was unable to designate by year-end will get the new administrative symbol "YE“
All initial filings SVO was unable to designate will get new administrative symbol “IF”
As these two won’t be available until 2019, insurers should continue to use the existing “Z” for 2018

5. Adopted Items New Administrative Symbols for Designation PL/PLGI
Effective December 31, 2018*
*except where noted
New Administrative Symbols for Designation PL/PLGI
It is required to submit evidence to the NAIC that securities subject to private letter ratings have actually been assigned a credit rating
“PL” securities follow the same eligibility rules as “FE” securities
SVO has been actively working with CRPs to receive PL ratings electronically directly from the CRPs to lessen the filing burden on insurers
New General Interrogatory process was created for PLR securities issued prior to Jan 1, 2018 where the insurer is unable to share the PLR with the NAIC

6. Adopted Items
Effective December 31, 2018*
*except where noted
New Administrative Symbols for Designation PL/PLGI (cont.)
Issues encountered by SVO:
Outdated Private Letter
Issuer Rating – PLR must be for a specific security and not the issuer.
PLRs are a subset of the filing exempt policy. If the securities are not eligible to use CRP ratings for conversion to NAIC designations under the FE policy, e.g. Credit Tenant Loans “CTL,” they are not eligible for PLR.
Private Ratings – PLR are only for privately issued securities. Publicly issued securities must continue to go through the FE process.
Missing letter – Insurers must attach this to support each reported PL.
Different Securities – PLR filing was for one security identifier but the private letter itself is for another security identifier.

7. Effective immediately*
Adopted Items
Effective immediately*
*except where noted
Add Swiss GAAP as an accepted NFPS
SVO is authorized to accept Audited Financial Statements prepared in accordance with National Financial Presentation Standards, e.g. Canadian, UK, Australian, German, French, Dutch, Italian, Belgium, and Swiss
Amended P&P Manual to redefine the term CRP
The amendment clarifies the CRP includes those of its affiliates identified to the SEC by the CRP as a separate legal entity or a separately identifiable department or division of the credit rating provider
The SEC treats the credit ratings by those affiliates as ratings issued by the CRP for purposes of Section 15E of the Securities and Exchange Act of 1934

8. Adopted Items Delete market indicator Instruction
Effective December 31, 2019*
*except where noted
Delete market indicator Instruction
Eliminate administrative symbols “A,” “J,” “K,” “L,” “U,” and “V”
Delete Administrative Symbols for Preferred Stocks
Eliminate administrative symbols “P” and “RP”
Add New Credit Rating Agency
Japan Credit Rating Agency Ltd – effective after 2019
Delete Modified Filing Exemption “MFE” Process
SAPWG would like to eliminate SSAP No. 43R, paragraph 26(b)

9. Adopted Items Delete Valuation Instruction Clarifies: Recognizes:
Effective December 31, 2019*
*except where noted
Delete Valuation Instruction
Clarifies:
SVO publishes values in the AVS+ for any security reported without a value under the compilation instructions
The insurers are not required to use this valuation, which is provided solely to give regulators a measure of value for the security if they need one
Recognizes:
The adoption of SSAP No. 100R – Fair Value in 2010 provided a valuation framework that eliminates the need for an SVO valuation function

10. Adopted Items Add NAIC Designation Category
Target Date: 2020
Add NAIC Designation Category
IRBCWG adopted a proposal to increase the number of RBC categories for bond from 6 to 20

11. Proposed Items
P&P Manual Make-Over: separate policy from administrative tasks and methodology
Current
Proposed
Part One
Purposes, General Policies, and Instructions to the SVO
Policies of the NAIC Valuation of Securities Task Force
Part Two
Filing with the SVO
Operational and Administrative Instructions Applicable to the SVO
Operations
SVO Administrative Procedures
Part Three
Credit Assessment
SVO Procedures and Methodology for Production of NAIC Designations
Part Four
Special Regulatory Procedures Applicable to Investment Activity of Insurers
The NAIC Structured Securities Group
Part Five
Valuation of Securities
Part Six
SVO Verification Activities in Support of Certain Regulatory Processes
Part Seven
Mapping
exposure_e_task_force_transition_table.pdf

12. Proposed Items Look-through analysis
Look-through analysis will be applied to the fund’s portfolio
This item would expand fixed-income treatment to qualifying funds issued by any investment company type registered with and regulated by the SEC, e.g. open end fund, closed end fund and unit investment trusts
The use of NAIC CRP credit ratings would be excluded in this activity

13. Investment Risk-Based Capital Working Group
IRBCWG
Investment Risk-Based Capital Working Group

14. Effective 2018 Annual Reporting
Adopted Item # P
Effective 2018 Annual Reporting
P&C
Move Affiliated Bond RBC Charge from PR003-5 to PR006
Include both Affiliated and Unaffiliated Bond RBC Charge in PR006

15. Effective 2018 Annual Reporting
Adopted Item # P
Effective 2018 Annual Reporting

16. Effective 2018 Annual Reporting
Adopted Item # L
Effective 2018 Annual Reporting
Life and Fraternal
RBC factor change
Factors Table
As determined by the NAIC

17. BWG
Blanks Working Group

18. Adopted Item #2017-24BWG Modified
Effective December 31, 2018*
*except where noted
New Category Lines for Bank Loans
Add additional lines for bank loans on the Schedules D Part 1, 3-5, Part 1A Section 1 & 2, Part 1B and Summary, DA Part 1, DL Part 1 & 2, and E Part 2
Adjusts resulting category line number references

19. Adopted Item # BWG
Effective December 31, 2018*
*except where noted
Update Language on Schedule DB Part D Section 1 for Exchange-Traded Funds and Centrally Cleared Derivatives
Add subheading, “Over-The-Counter,” and an updated total row, “Aggregate Sum of Central Clearinghouses (Excluding Exchange Traded),” on the quarterly and annual schedules

20. Adopted Item #2018 06BWG Increase Number of Lines for Schedule DB
Effective December 31, 2018*
*except where noted
Increase Number of Lines for Schedule DB
Add “-999” to the end of each available line number
Allow up to 9,999,996 lines on the quarterly and annual schedules
Eliminate the need to accumulate data within certain categories

21. Context: Adopted Schedule DB Items
Net investment income increased 3.9% ($6.7 billion) to $176.9 billion in 2017, compared to $170.2 billion in 2016
Derivatives increased $3.9 billion to $7.6 billion
Other invested assets increased $2.3 billion to $14.7 billion
Unaffiliated other bonds increased $1.5 billion to $123.2 billion
Net Investment Income Allocation
The table to right is from the Center for Insurance Policy and Research “CIPR” – 2017 Life, A&H and Fraternal Insurance Industry Analysis Report
As you can see, the net investment income from derivatives increased more than a double in There is a need for increasing number of lines for full disclosure.
Source: The Center for Insurance Policy and Research “CIPR” – 2017 Life, A&H and Fraternal Insurance Industry Analysis Report

22. Adopted Item #2018-07BWG Modify Reporting Designations
Effective December 31, 2018*
*except where noted
Modify Reporting Designations
Add new “PL” and “PLGI” symbols to the reporting instructions
Modify definitions of the symbol “Z”
Rename the “NAIC Designation” and “NAIC Designation/Market Indicator” columns to “NAIC Designation and Administrative Symbol” for Schedules BA, D, and DL
Develop a new General Interrogatory for PL securities issued prior to January 1, 2018
Add two new symbols: “YE” and “IF”
Remove designation matrices from instructions and replace with list of administrative symbols

23. Context: PL and PLGI symbols
If you haven’t filed PL ratings with SVO, you may want to do it sooner rather than later
Cost is $175 to file a PL rating
According to CIPR – 2017 Life, A&H and Fraternal Insurance Industry Analysis Report, the bond portfolio was 68.7% publicly traded securities and 31.3% private placements
Private placements are one-third of the bond portfolio owned by insurers
Source: The Center for Insurance Policy and Research “CIPR” – 2017 Life, A&H and Fraternal Insurance Industry Analysis Report

24. Adopted Item #2018-09BWG Modify and Add Notes
Effective December 31, 2018*
*except where noted
Modify and Add Notes
Modify instructions for Notes 20A, 20C, and 20D to reflect changes to SSAP No. 100R — Fair Value
Modify the illustrations for Notes 20A and 20C to move the NAV column and data-capture it
New disclosure, Note 20E
SSAP No. 100R updates language around use of NAV as a practical expedient to fair value
Discloses when the investment may be sold below NAV, e.g. description of the investment, estimate of the period of time over which the underlying assets are expected to be liquidated by the investees, etc.
Call to update the language to match the guidance change

25. Adopted Item #2018-09BWG (Note 20A)
Effective December 31, 2018*
*except where noted
20 A. and 20 C. NAV is the new one that Sabrina will emphasize.

26. Adopted Item #2018-09BWG (Note 20C)
Effective December 31, 2018*
*except where noted
20 A. and 20 C. NAV is the new one that Sabrina will emphasize.

27. Adopted Item # BWG
Effective December 31, 2018*
*except where noted
Modify Instructions for Bifurcation of OTTI Investments
Modify AVR/IMR instructions for bifurcation of OTTI investments subject to SSAP No. 26R — Bonds
Clarify investments with other-than-temporary impairments be included either on:
Asset Valuation Reserve, or
Interest Maintenance Reserve reports

28. Adopted Item #2018-11BWG Added Instructions for Categories
Effective December 31, 2018*
*except where noted
Added Instructions for Categories
Clarified investments should not be reported in those categories when there is a specific category available for the investment, e.g. Collateral Loans and Surplus Notes
Provide clarifying language and additional instructions to:
Fixed or variable interest rate investments with underlying characteristics of a bond, mortgage loan, or other fixed-income instrument
Joint ventures or partnership interests for which the primary underlying investments are considered fixed-income instruments
Intended to avoid double-counting of assets within Schedule BA

29. Adopted Item # 2018-12BWG Modify Instructions for Financing Premiums
Effective December 31, 2018*
*except where noted
Modify Instructions for Financing Premiums
Define financing premiums within the Schedule DB general instructions
Modify the instructions to reflect changes to SSAP No. 86 – Derivatives being adopted by the SAPWG
Add new note to Financial Statement No. 8H, which shows the total future settled premiums
Add four new electronic columns on the Schedule DB Part A/B Section 1
Total Premium Cost
Unpaid Premium Cost
Fair Value of Derivative, Excluding Impact of Financing Premiums
Unrealized valuation Increase/Decrease, Excluding Impact of Financing Premiums

30. Adopted Item # BWG
Effective December 31, 2018*
*except where noted
Add Disclosure Changes and a new Note 10O to reflect changes to SSAP No. 97 – Investments in SCA being considered by SAPWG
Add a new disclosure to Note 10
Required the disclosure of:
The name of the SCA investment
The reporting entity’s current period share of SCA net income or loss
The reporting entity’s accumulated share of SCA losses not recognized during the period equity method was suspended
The reporting entity’s share of the SCA equity
Any guaranteed obligation or commitment for financial support
The SCA’s reported value
Graph: Everything is brand new. Not emphasizing a specific coliumn

31. Adopted Item #2018-15BWG (cont.)
Effective December 31, 2018*
*except where noted

32. Adopted Item #2018-17BWG Modify Instructions for Wash Sales
Effective December 31, 2018*
*except where noted
Modify Instructions for Wash Sales
Modify the instructions for Note 17C to reflect SAPWG adoptions
Excludes cash equivalents, derivative instruments, and short-term investments with NAIC 1-2 designations

33. Adopted Item # BWG
Effective March 31, 2019
Combine Reporting Guidance for Life and Fraternal
Reduces redundant reporting publications and the burden on both insurers and regulators for maintenance

34. Exposed Item # BWG
Target Date: December 31, 2019
Update the rows on the Summary Investment Schedule to tie to the different investment schedules on the Annual Statement 
Adopted the modifications August 4, 2018 and re-exposed one proposal previously deferred with a comment deadline September 19, 2018

35. Miscellaneous Item
For ordering the AP&P Manual, be sure to order sufficient copies on time because the NAIC decided not to print very many
The NAIC thought they would keep 100 copies only after receiving the pre-orders
Once all are sold, they will not reprint
Consider getting the digital copies: It is more economical ($465/user vs. $500/book), and the more you buy the lower the price ($465/user for less than five users vs. $420/user for 5/10/50 users
AP&P Manual is the only digital item offered by the NAIC

36. Product Owner, Clearwater Analytics
Questions?
Sabrina Wilson
Product Owner, Clearwater Analytics