Skip to main content
logo
  • Products

    Investment Vehicles

    • ETFs
    • Commingled Funds
  • Investment Strategies

    Investment Options

    • Alternatives
    • Beta Strategies
    • Equities
    • Fixed Income
    • Global Liquidity
    • Multi-Asset Solutions
    • Commingled Funds

    Capabilities & Solutions

    • ETFs
    • Global Insurance Solutions
    • Liability-Driven Investing
    • Pension Strategy & Analytics
    • Outsourced CIO
    • Retirement Plan Solutions
    • Sustainable Investing
  • Insights

    Market Insights

    • Market Insights Overview
    • Eye on the Market
    • Guide to the Markets
    • Guide to Alternatives
    • Market Updates

    Portfolio Insights

    • Portfolio Insights Overview
    • Alternatives
    • Asset Class Views
    • Currency
    • Equity
    • Fixed Income
    • Long-Term Capital Market Assumptions
    • Portfolio Strategy
    • Sustainable Investing Insights
    • Strategic Investment Advisory Group

    Retirement Insights

    • Retirement Insights Overview
    • Guide to Retirement
    • Defined Contribution
  • Resources
    • Center for Investment Excellence Podcasts
    • Events & Webcasts
    • Insights App
    • Library
    • Taft-Hartley
    • Market Response Center
    • NEW: Morgan Institutional
  • About Us
    • Trusted Asset Manager
    • Diversity, Equity & Inclusion
  • Contact us
  • English
  • Role
  • Country
  • Morgan Institutional
    Search
    Search
    Menu
    You are about to leave the site Close
    J.P. Morgan Asset Management’s website and/or mobile terms, privacy and security policies don't apply to the site or app you're about to visit. Please review its terms, privacy and security policies to see how they apply to you. J.P. Morgan Asset Management isn’t responsible for (and doesn't provide) any products, services or content at this third-party site or app, except for products and services that explicitly carry the J.P. Morgan Asset Management name.
    CONTINUE Go Back
    1. NAIC summer national meeting key takeaways

    • LinkedIn Twitter Facebook

    NAIC summer national meeting key takeaways

    Summary notes from the 2019 Summer NAIC National Meeting.

    08/15/2019

    Dean Crabtree

    Wheatley Garner

    On August 3–6, we attended the 2019 NAIC Summer National Meeting in New York to stay informed on important regulatory issues that are affecting the insurance industry today. Summarized in this article are the most relevant sessions and discussions from the conference.

    Key sessions and topics

    Valuation of Securities Task Force focuses on “bespoke” securities that have uncertain risk characteristics

    Principal Protected Notes may be removed from Filing Exempt (FE) process

    The Blanks Working Group adopts 16 more changes for 2019

    The Valuation of Securities Task Force (VOSTF)

    The VOSTF has identified a number of securities that it feels the risk profile is not represented accurately either from a reporting aspect or the related risks inherent with the asset. It has dubbed this category of assets “Bespoke Securities.” The credit risk of the asset appears blended with other risk factors that impact the probability of full par repayment typically seen in a traditional security or investment. Examples of the assets with embedded features of asset types include:

    • Affiliated Party – affiliated parties placed in trusts and buying notes issued by that trust
    • Aircraft – investment in trusts whose sole assets are aircraft
    • Circular – transactions where the credit is owned or controlled by the issuer

    Current practices and policies make identifying the underlying risk problematic due to:

    • Many are rated by a NAIC Credit Rating Provider (CRP) – public or private rating, most being privately rated
    • Face value (description) of the asset doesn’t reflect what is within the asset
    • Avoids public transparency or scrutiny
    • Regulators can’t assess the true solvency impact of the asset
    • Avoids detection by NAIC to identify the risk profile or underlying unique characteristics for each security

    The VOSTF feels there are some things that identify or set red flags to these assets:

    • Singular Rating
    • Private Letter Rating
    • Assets backing the security are owned by the insurer or one of its affiliates
    • Assets backing the security don’t generate a typical bond cash flow for Principal and/or Interest (P&I)
    • Some level of an affiliate is also underwriting the asset

    The VOSTF will continue to focus on this framework with the term “Critical Developing Issue” quoted. An update during an interim call or at the Fall National Meeting is expected. We will continue to follow this closely and will update our findings accordingly.

    Exposed items include:

    Received and exposed for 45-day comment period a proposal to the P&P Manual to update the definition and instructions for investments known as Principal Protected Notes/Loans, also known as Combo Notes. This public comment period ends Sept. 19, 2019. The amendment proposes removing this class of securities from eligibility for Filing Exemption (FE) process and requiring that they be filed with the Securities Valuation Office (SVO) for proper analysis. Many of these types of assets contain similar themes:

    • Typically are labeled as structured securities
    • Mixes a traditional bond with assets that do not pose the same structure or characteristic (equity, derivative, indices)
    • Those assets are generally there for excess return attributes
    • This hybrid model contains risk characteristics and assets that do not belong on the bond Schedule D, nor do they meet the criteria for bond-like Risk Based Capital (RBC)
    • Typically rated by an approved credit rating provider on the bond level asset, not the other component(s)
    • Appropriate transparency of the underlying risks and asset structure is not sufficient
    • Components within the structure don’t share the same credit or repayment language as the bond portion of the asset

    There were several staff report updates that were also given regarding:

    • Review of existing Credit Tenant Loan (CTL) guidance and to possibly include other forms of leasing transactions
    • Updates and forward process of the RMBS and CMBS price breakpoints with the potential upcoming expansion of the NAIC designation categories
    • Monitoring of Infrastructure Investments and continued gathering of additional data
    • Referral to Blanks Working Group (BWG) to add NAIC designations to SEC-registered fund investments
    • Removal of the obsolete concept for the Modified Filing Exempt (MFE) process
    • Clarifications of the grandfathering clause for “Investments in Funds Eligible for Fixed Income-Like Treatment” will require a public rating to be certified or reaffirmed annually.

    The Statutory Accounting Principles Working Group (SAPWG)

    Adopted items included:

    Ref #2018-32 / SSAP 26R – Prepayment Penalties (this item was re-exposed from previous guidance).

    Provide clarity and accounting treatment and reporting of investment income, realized gains/(losses) or fees when bonds are prepaid for consideration that results in a loss.

    Ref #2018-22 / SSAP-37 Mortgage Loans (this item was re-exposed from previous guidance).

    • Clarify mortgage loans include loans acquired or obtained through assignment, participation or syndication.
    • Clarify the definitions of a single loan agreement and a bundled mortgage loan, which the latter is out of scope for this guidance
    • Incorporate language to clarify participating interests

    Ref #2018-03 – Reporting NAIC Designations as Weighted Averages is not permitted. In the event of acquiring multiple lots of the same security, an insurer has two reporting options: 1. report a single line item using the lowest NAIC designation or 2. report each lot with its own purchase date, cost basis and applicable rating.

    With the elimination of the Modified Filing Exempt (MFE) process in 2019, staff feels the impact of this adoption is minimal.

    Exposed items included:

    SSAP-43R – To exclude collateralized fund obligations and other structures with underlying equity components. Revision also prevents existing equity assets from being reported as securitized long-term bonds.

    Ref #2019-18 / SSAP-86 – Clarifications that derivatives not used for hedging, income generation or replication should be reported at fair value and are considered non-admitted assets.

    SSAP-97 – Add two new suffixes for SVO filings that are carried over from prior year.

    The Blanks Working Group (BWG)

    Adopted 16 more items for 2019 including: (for the list of previously adopted 2019 items, please follow the link to our 2019 Spring Summary).

    Ref #2019-03BWG – Add designation column for mutual funds to the annual Schedule D2.2 as well as add applicable columns and instructions for the quarterly reporting on Schedule D3 and D4.

    Ref #2019-04BWG – Remove reference to Life and Fraternal only for Schedule BA instructions regarding investments with characteristics of bonds or fixed income. Also remove reference regarding cusip and NAIC designation columns. Add lines for Fixed or Variable Interest Rate Investments that have underlying characteristics of a bond, mortgage loan or other fixed interest rate investment. Add categories to distinguish between which ones have/have not been approved by the Securities Valuation Office (SVO).

    Ref #2019-05BWG – Add new instructions and illustrations for life policies where the reporting entity is the owner and beneficiary or has obtained the rights to control the policy.

    Ref #2019-07BWG – Modify instructions for Note 20 – Fair Value to reflect changes to SSAP- 100R.

    Ref #2019-10BWG – Add clarification to determine gain/loss for prepayment penalties where received amount is less than par.

    Ref #2019-12BWG – Add a code for foreign mutual funds for Schedule D2.2, column 3. Add instructions for foreign open-ended funds to be included as mutual funds.

    Ref #2019-13BWG – Add disclosure of top 10 fund managers.

    Ref #2019-17BWG – Add lines for affiliated and modify existing lines for bank loans for unaffiliated loans on Schedules D1, DA, DL, E. Subtotal should equal all affiliated and unaffiliated loans.


     GIS-NAIC_0819 | 0903c02a8267ded7

    • Insurance accounting and regulatory reporting
    J.P. Morgan Asset Management

    • About us
    • Investment stewardship
    • Privacy policy
    • Cookie policy
    • Binding corporate rules
    • Sitemap
    • Accessibility
    Opens LinkedIn site in new window
    J.P. Morgan

    • J.P. Morgan
    • JPMorgan Chase
    • Chase

    This website is a general communication being provided for informational purposes only. It is educational in nature and not designed to be a recommendation for any specific investment product, strategy, plan feature or other purposes. By receiving this communication you agree with the intended purpose described above. Any examples used in this material are generic, hypothetical and for illustration purposes only. None of J.P. Morgan Asset Management, its affiliates or representatives is suggesting that the recipient or any other person take a specific course of action or any action at all. Communications such as this are not impartial and are provided in connection with the advertising and marketing of products and services. Prior to making any investment or financial decisions, an investor should seek individualized advice from personal financial, legal, tax and other professionals that take into account all of the particular facts and circumstances of an investor's own situation.

    Opinions and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable but should not be assumed to be accurate or complete. The views and strategies described may not be suitable for all investors.

    INFORMATION REGARDING INVESTMENT ADVISORY SERVICES:   J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. Investment Advisory Services  provided by J.P. Morgan Investment Management Inc.

    INFORMATION REGARDING MUTUAL FUNDS/ETF: Investors should carefully consider the investment objectives and risks as well as charges and expenses of a mutual fund or ETF before investing. The summary and full prospectuses contain this and other information about the mutual fund or ETF and should be read carefully before investing. To obtain a prospectus for Mutual Funds: Contact JPMorgan Distribution Services, Inc. at 1-800-480-4111 or download it from this site. Exchange Traded Funds: Call 1-844-4JPM-ETF or download it from this site.

    J.P. Morgan Funds and J.P. Morgan ETFs are distributed by JPMorgan Distribution Services, Inc., which is an affiliate of JPMorgan Chase & Co. Affiliates of JPMorgan Chase & Co. receive fees for providing various services to the funds. JPMorgan Distribution Services, Inc. is a member of FINRA  FINRA's BrokerCheck

    INFORMATION REGARDING COMMINGLED FUNDS: For additional information regarding the Commingled Pension Trust Funds of JPMorgan Chase Bank, N.A., please contact your J.P. Morgan Asset Management representative.

    The Commingled Pension Trust Funds of JPMorgan Chase Bank N.A. are collective trust funds established and maintained by JPMorgan Chase Bank, N.A. under a declaration of trust. The funds are not required to file a prospectus or registration statement with the SEC, and accordingly, neither is available. The funds are available only to certain qualified retirement plans and governmental plans and is not offered to the general public. Units of the funds are not bank deposits and are not insured or guaranteed by any bank, government entity, the FDIC or any other type of deposit insurance. You should carefully consider the investment objectives, risk, charges, and expenses of the fund before investing.

    INFORMATION FOR ALL SITE USERS: J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide.

    NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE

    Telephone calls and electronic communications may be monitored and/or recorded.

    Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our privacy policies at https://www.jpmorgan.com/privacy.

    If you are a person with a disability and need additional support in viewing the material, please call us at 1-800-343-1113 for assistance.

    READ IMPORTANT LEGAL INFORMATION. CLICK HERE >

    The value of investments may go down as well as up and investors may not get back the full amount invested.

    Copyright 2023 JPMorgan Chase & Co. All rights reserved.