Q&A for Filers - Section 9

Q&A for Filers
Compiled from NASVA members over the last few years

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Section 9: Miscellaneous Q & A

Q: What is the NAIC’s Business Continuity Plan in the case of disaster (i.e. avian flu) and how will it impact the operations of the SVO?

A: The plan that we follow would depend on the magnitude of the disaster relative to our staff, our offices, and our city.
We assure you that we will do everything possible, as we did after September 11, 2001, to continue, or resume, our operations as quickly as feasible given the particular circumstances that we face.
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Q: Who is responsible for monitoring the accuracy of and recommending updates to the US Government lists in the P&P manual?

A: Reference Part Two, Section 10 of the P&P Manual for an explanation of how to modify language to the P&P Manual.

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Q: Please explain how indices are added to the RSAT Index List. Is there a fee to have something added?

A: Reference Part Thirteen of the P&P Manual. Yes, there is a fee for having something added to the RSAT Index List.

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Q: Now that both FNMA & FHLMC have been taken over by the govt, do these still belong as GSEs or should they be reported as straight US Govt obligations?

A: They are still considered GSE.

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Q: Money Market Funds Removed from Approved List. If you own one of these funds no longer on the approved list? Where should they be reported? Can they still be reported on Schedule D1?

A: Money Market Mutual Funds held by insurance companies that are listed on one of the three SVO's "approved" lists are report on DA Part 1 (US Direct Obligation list & Class 1 list ), and Schedule D, Part 1 (Bond Fund list). Money market funds that are not on the "approved" list are treated as equity. Schedule D, Part 2, Section 2. In 2007 NAIC added to NAIC D2.2 separate line number groupings for mutual funds and money market mutual funds (those not on the special SVO lists).

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Q: What are CDARS? Do any of you actually trade these, and how should they be reported for Statutory purposes?

A: CDARS are CD pools issued by the Certificate of Deposit Account Registry Service, and many companies have been buying them. This is from the CDARS Web site http://www.cdars.com/how-cdars-works.php:
“When you place a large deposit with a [CDARS] network member, that institution uses CDARS to place your funds into certificates of deposit issued by banks in the network. This occurs in increments of less than the standard FDIC insurance maximum to ensure that both principal and interest are eligible for full FDIC insurance.

Other network members do the same thing with their customers' deposits. With the help of a sophisticated matching system, network members exchange funds. This exchange occurs on a dollar-for-dollar basis, so that the equivalent of your original deposit comes back to your institution and effectively stays local (meaning the full amount can support lending initiatives that build a stronger local community). Alternatively, with your consent, network members can receive fee income instead of matching deposits. In either case, the full amount of your original deposit becomes eligible for complete FDIC protection and you receive just one regular statement detailing all your holdings.”
As far as Statutory reporting is concerned, we have not been able to get any official guidance. Current wisdom indicates that the risk is in the individual parts, not just the bank where the CDARS agreement is signed. You may be well-advised to break them into their individual parts.

If your company has not yet invested in CDARS but is considering it, be cautious about any long-term CD portion of the agreement. Long-term CDs would have to be reported on Schedule D – Part 1; that means you will have to pay for a CUSIP number for each of the CDs (required for Schedule D – Part 1 reporting) and, technically, you should file them with the SVO for a rating. The cost of doing all that would likely wipe out your effective yield.

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Q: Has anything been brought up regarding municipal bonds where S&P gives the bond an underlying rating of an A or NAIC 1 and then the Moody's rating doesn't give an underlying rating but it rates it based on the insurance enhancement (MBIA) so it is rated an NAIC2? We don't think we should have to take the lower rating since that is based on the insurance and not the underlying bond. Have there been any discussions on this?

A: This was discussed at the NASVA Quarterly meeting in October. The SVO is allowing companies to file the muni's in order to get a higher rating based on the underlying and not based on the insurance wrapper. As of the October meeting, only 2 bonds had been re-filed! It's an expense, but it may be better than taking the potential RBC and surplus hits (not to mention throwing off the portfolio balance) because AMBAC and MBIA were both poised to take multiple credit rating downgrades prior to year-end. Going by the book, companies will still have to use the second-lowest rating - regardless of the fact that it's the rating of the muni bond insurer - unless they file with the SVO.

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