Update on NAIC Actions on Structured Security Investments

Last year, we reported on efforts by the National Association of Insurance Commissioners (the “NAIC”) to review the regulatory oversight of private equity and complex assets in the insurance industry, particularly with respect to certain types of structured security investments by insurers: collateralized loan obligations (“CLOs”), collateralized fund obligations (“CFOs”) and rated notes/feeder funds. Our previous report (“January 2023 Report”) is available here.

This alert provides an updated look at the NAIC’s activities regarding such investments since our January 2023 Report. Since then,

(i) the NAIC adopted amendments to statutory accounting reporting requirements to clarify that CFOs and rated notes may not automatically be reported as “bonds”;

(ii) the Securities Valuation Office (“SVO”) has continued to seek changes to address concerns about reliance on credit rating provider (“CRP”) ratings in the credit quality assessment of securities owned by insurers;

(iii) the Valuation of Securities (E) Task Force (“VOSTF”) adopted revisions to the Purposes & Procedures Manual of the NAIC Investment Analysis Office (the “P&P Manual”) to give the SVO the responsibility of modeling CLO investments; and

(iv) the Risk-Based Capital Investment Risk and Evaluation (E) Working Group (“RBC IRE WG”) adopted an interim 45% factor for residual tranches of structured securities for year-end 2024 filings and continues to work on a long-term solution for the appropriate risk-based capital (“RBC”) charges for CLO tranches.

Click here to read more.