NU Online News Service, June 10, 2003, 6:43 p.m. EDT – An arm of the National Association of Insurance Commissioners, Kansas City, Mo., is moving closer to adopting a measure that could lead to a revamping of the NAIC’s Securities Valuation Office.
Regulators at the NAIC working group that oversees the New York-based securities rating office have given tentative approval to a motion that could exempt insurers from having to send the office information about simple securities with ratings of 1 or 2.
But the regulators say they will give final approval only if they determine that the exemption for highly rated securities would be “revenue neutral” for the NAIC.
The SVO is responsible for valuing insurers’ securities holdings.
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Before the SVO values securities filings, it gives them ratings of 1 to 6. The securities that appear to be the safest get ratings of 1 or 2.
Revenue from SVO filing fees increased to $7 million in 2002, from $6 million in 2001. The NAIC budget called for the SVO to generate $5.7 million in revenue each year, according to NAIC Chief Financial Officer Brady Kelley. The NAIC has budgeted $6.1 million in SVO revenue for 2003, Kelley said.
Calculating how much revenue comes from filings of high-rated securities and how much from filings of lower-rated securities is challenging, Kelley said.
“It is very difficult to respond specifically in terms of revenue generated from 1- and 2-rated securities vs. 3-6-rated securities, primarily because the composition of these security filings can fluctuate significantly from year to year,” Kelley said. “Fluctuations are driven by market conditions, various factors affecting the capital markets, and the investment strategies of the industry.”
An NAIC evaluation based on 2001 and 2002 filing volumes suggests that a significant portion of revenue is derived from NAIC 1- and 2-rated securities. “Of the 45.8% population of rated securities filed with the SVO, approximately 43% is comprised of those securities designated NAIC 1 or 2, while the remainder relates to rated securities designated NAIC 3 through 6,” Kelley said.
Regulators hope to start streamlining the SVO filing process around Jan. 1, 2004, and they hope to ensure revenue neutrality by the time the streamlining begins.
Plans are in place to ensure that both parts of the project are “considered and resolved by the NAIC membership in unison,” Kelley said.