Starting with the 12/31/2010 annual statement filing, ratings supplied by the ARO that do not have an effective date or confirmed evaluation date within the past 12 months are not to be included in determining a NAIC designation. If no ratings are available, the filer must apply the 5*/6* process. The application of the 5*/6* to securities previously reported as a 1 or 2FE will have a financial impact on the book-adjusted carrying value and RBC charges.
The modified FE and the ARO review date requirement are only to be applied to structured securities; other securities do not have the date requirement. Because this only affects structured securities, and because most RMBS and CMBS securities will be modeled, the primary focus of this requirement will be asset-backed securities. With their year-end filings, insurance companies will have one of the following options in reporting designations for structured securities:
- Modeling—RMBS and CMBS (new) securities will be modeled and a final reporting designation will be used based on book and market value considerations.
- NAIC-Supplied Designations—The SVO will provide designations for filed securities.
- Modified FE—for securities not modeled and having no NAIC-supplied designation, the filer can apply the modified FE process, which requires the use of ratings reviewed within the past 12 months.
- NAIC 5*/6*—If no model, supplied designation or modified FE is applicable, then the 5*/6* process has to be used.
The larger question for our clients and industry is whether the review or effective date will be available by year-end; at present, it is uncertain as to whether the AROs will provide the required information in time. SS&C attends and is a regular participant in NAIC conference calls and other industry meetings and will continue to monitor the situation. If there are any changes we will alert our client base, but we also recommend that industry stakeholders reach out to the ratings organizations to ensure this information is available for year-end.
SS&C is updating CAMRA™ to be able to store the review or effective date and then only use the rating in our FE evaluation if it is within the past 12 months. SS&C is always available to discuss your portfolio management needs, including adherence to NAIC statements. We have implemented improvements to CAMRA and our other products to accommodate NAIC disclosure requirements.
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