| Q&A for Filers Compiled from NASVA members over the last few years |
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Please use these convenient bookmarks to choose a topic: Filing | RSAT | Schedule BA | Filing Exemption AVS/ISIS System | Annual/Qtrly Statement Reporting | Pricing | Billing | Miscellaneous |
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Section 4: Filing Exemption Q & AQ: Why are NRSRO rated Surplus Notes reported as FE on the VOS CD Rom if they cannot be reported as such by industry? A: For the most part, Schedule D securities (FE pool) containing at least one NRSRO rating and not within the VOS database are currently classified as FE, including Surplus Notes. Known exceptions to this rule include specific government exempt issues (see #33 below), perhaps also Surplus Notes. The removal of Surplus Notes from the FE database was raised earlier this year. It's not as easy as suggested to completely distinguish and filter the entire Surplus Notes universe due to inconsistent information within the CUSIP feed.Back to top Q: Are there any plans to remove Surplus Notes from the FE process? A: The reporting and accounting framework for surplus notes does not incorporate credit ratings. Under SSAP No. 41 – only NAIC 1 equivalents are eligible for amortization treatment and SSAP No 41 provides for these surplus notes to be filed with the SVO for listing per Part Twelve of the P&P Manual and Section 11 of the Appendix of the P&P Manual. All other surplus notes (whether rated at he equivalent of an NAIC 2 – 6 or unrated) are valued in accordance with the formula in SSAP No. 41. Therefore the filing exempt concept does not apply to surplus notes since ratings serve no function in their reporting or valuation.The SVO has worked with NASVA to clarify this and has a proposal before the Task Force to clarify Part Fourteen of the P&P Manual since surplus notes are Schedule BA assets reportable on the surplus note line. Back to topQ: What are the requirements for a private letter rating to be used as support for a FE designation? Is a private letter rating with a current year date required each and every year or is the letter valid for the life of the security as long as the filing company monitors the issuer for material changes? A: The letter needs to provide proof to your examiner that the security is currently rated and monitored.Back to top Q: In the case of Trust securities (where all securities put into the trust remain for the life of the trust, except in the case of failing credit or bankruptcy where the collateral is removed) does the initial private rating letter validate the FE designation for the life of the Trust or is the Private Letter Rating with a current year date required each year? A: A Private Letter Rating would be required each year. The performance of the securities in the trust must be monitored each year.Back to top Q: Is FHLB capital stock considered to be filing exempt? A: No, according to the P&P Manual, FHLB capital stock is not considered FE. Section 17 specifically says that for FHLB, "the filing exemption applies to consolidated system wide bonds and notes, which benefit from the joint and several guarantee of the Federal Home Loan Bank System."Back to top Q: What is the anticipated implementation date for AM Best ratings to be included in the FE process? A: AM Best ratings are currently slated to be incorporated within the FE process by 8/25/2006.Back to top Q: Fitch introduced a new rating methodology with regards to distressed or defaulted investments on April 25th. How does this change affect the FE process? A: This change will not impact our current FE process. Our NRSRO rating(s) translation(s) to Designation takes into account whatever is reflected in the NRSRO rating(s).Back to top Q: DBRS announced a new rating methodology for bank ratings on June 1st. How does this change affect the FE process? A: This change will not impact our current FE process. Our NRSRO rating(s) translation(s) to Designation takes into account whatever is reflected in the NRSRO rating(s).Back to top Q: It is permissible to report Schedule BA assets with FE designations? A: The Schedule BA process is a classification and designation process. The FE process is not valid for classification purposes. To receive a Classification other than the standard BA classification (i.e., to receive fixed income-like), the security must be filed with the SVO.Back to top Q: What steps, if any, are the SVO and/or the NAIC planning to take to resolve the issue of different classifications for NRSRO rated securities in the VOS database vs. the FE database? For example, in early 2005 a security is a 1FE bond in the FE database and, subsequent to a filing, becomes a RP1 preferred in the VOS database in late 2005. At the end of the addendum period (end of January 2006) the security reverts back to a 1FE bond since it is NRSRO rated. Since this will create on industries end all kinds of systems errors, has the SVO thought of how they will handle this situation in the upcoming year? A: Briefly, the SVO will implement a change that will no longer allow FE eligible securities with VOS designation to revert back to FE status after the addendum. This change will take effect in October 2006.Back to top Q: Are there any plans to begin tagging securities filed at the request of a regulator so that the FE designation does not override the SVO assigned designation? In kind, how does the NAIC plan to address NRSRO rated securities which have qualified ratings? A: At this point, NRSRO rating feeds do not flag or differentiate qualified ratings.Back to top Q: Has the SVO performed an internal cost-benefit analysis of Gary Wickland’s proposal for managing the data verification of multiple NRSROs? A: We have not yet been able to do the cost-benefit analysis.Back to top Q: It is our understanding that CUSIPs in the FE database are matched to ones contained in the NRSRO data feeds and then converted into FE designations which are populated in the FE database. We are aware the NRSROs use many different types of identifiers in their data feeds such as ISIN. For those securities which are determined to be Unconfirmed FE, does the NAIC ever use the feed they receive from the S&P CUSIP Service Bureau to further decode the ISIN numbers into CUSIP/PPN/CINS so more securities can be identified as FE? If not, why? A: The CUSIP/PPN/CINS values within our S&P CUSIP feed serve as the common identifier within the FE process. Our system is not currently geared to decode ISINs or any other identifier beside CUSIP/PPN/CINS within the CUSIP feed. Insurers can inform the S&P CUSIP Bureau to insert missing CUSIP values, if available.Back to top Q: US government exempt securities still continue to appear as UFE or 1FE. Why? We were told that this problem would be corrected in 2005. A: Rodney is currently involved in discussions with the SVO Support Team and Todd Sells/Matt Minnich of FRS to develop procedures to properly identify and remove these government exemptions from the FE and UFE data buckets. It will be a gradual process at the outset but expect to have tangible results within the next few months.Back to top Q: When does the NAIC plan to implement a change to the second lowest in its FE process? Should industry expect to see the change as of January 2007 or a later date? A: The FE process will implement the second lowest rating principle immediately after the 2006 Addendum, approximately 01/16/2007.Back to top Q: Who should a company contact if it has a question regarding an FE designation or price contained within AVS? Should the company e-mail the NAIC helpdesk? Which department or group of the NAIC staff members are responsible for addressing the question? A: Filers who have questions about FE designations or prices can apply the following hierarchy to researching the problem:
Q: On the NRSRO rating feeds, issues are identified by different types of identifiers (CINS, ISIN, CUSIP, PPN). Which type of identifier(s) does the NAIC use in the FE rating confirmation process? A: The NAIC uses CINS, PPNs, and CUSIPs in all of its applications.Back to top Q: We are still seeing securities being reclassified by the SVO from bonds to preferred or common stock even with the new FE rules. We have been advised to take the matter up with our individual state insurance departments on a case-by-case basis, but because the bulk of these reclassifications take place at year-end, there isn’t always time to get a response from the state, or in some cases multiple states. Is there a ruling for interim reporting of these securities? Is ther any thought to giving them their own suffix (perhaps H for hybrid) so that they don’t have to constantly be moved between Schedule D – Part 1 and Schedule D – Part 2 Sections 1 or 2? A: This question makes a number of assumptions that must be clarified before we can offer a suggestion of what may be happening here. It is important to understand that the SVO does not have the ability to affect the FE process. Therefore, the SVO is not reclassifying securities that have been reported by an insurance company on its financial statement as FE. The SVO keeps statistics on performance for all of its activities. We are now, and have been for some time, completing 60 percent of the work filed with us within 30 days of the filing, with the balance following in quick order.With respect the classification of FE securities. At the present time, the only way that the SVO would be conducting classification analysis on NRSRO rated securities is if an insurance company files the NRSRO rated security voluntarily or if it files the NRSRO rated security at the direction of a state insurance regulator. In these cases, the SVO will assign a Designation consistently with the FE rule, but as the FE rule only impacts credit – the SVO will conduct a classification analysis. The decision that results from that analysis may differ from the company’s expectations for a number of reasons, some of which have to do with the name given to the security and the identifier assigned to the security as a result of that. However, once a security that is otherwise eligible for the filing exemption is filed with the SVO, it is no longer eligible for or considered to be filing exempt but is considered an SVO designated security (and classified) security. Back to topQ: Are we required to use the SVO’s market prices for securities contained in the FE database? A: Yes, regulators expect the SVO to provide market prices.Back to top Q: Are RSATs eligible for FE designations? A: No, they are not.Back to top Q: Why are FE securities assigned a classification type in the FE database? There is nothing in the P&P manual that indicates a requirement for an asset classification – all it requires is the existence of an NRSRO rating. A: For a security to be FE eligible, the P&P manual requires the existence of an NRSRO rating and also requires that this rating be continuously monitored. The NRSRO ratings are electronically transmitted to the NAIC and are translated into the appropriate designation. For each of the NRSRO’s there is a separate conversion chart for each classification (bonds, preferred stock and commercial paper). The FE process needs to know the security’s classification in order to access the correct conversion chart to determine the security’s FE designation. See Section 4 of the P&P manual Appendix for the rating Equivalent charts for the NRSRO’s.Back to top Q: After DBRS became an NRSRO recognized by the NAIC, there was a time lag before the DBRS ratings were incorporated into the FE designations reported by the SVO in the month end files. Have AM Best ratings been incorporated in the month end files yet? If, not do you know the expected time frame? A: AM Best was completed in August 2006.Back to top
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