Regulators and insurers started working out the details for streamlining the Securities Valuation Office, the securities rating arm of the National Association of Insurance Commissioners, Kansas City, Mo.
Ensuring revenue neutrality for any exemptions for security ratings was one issue that was reviewed recently during the summer NAIC meeting in New York.
A decision by regulators to exempt class 1 and 2 securities from filing will reduce SVO revenues by approximately $2,786,200, according to the NAIC.
SVO filings are rated from 1 to 6, with the highest rated being 1 and 2.
To compensate for this reduction in income, the NAIC proposed adjusting fees for nonrated filings that will continue to be filed with the SVO, arguing that the rated fees currently subsidize nonrated fees.
Insurers, however, offered their own proposal that would apportion a pro rata share of the shortfall based on a companys share of the industrys nongovernment and preferred securities, according to Steve Broadie, assistant vice president with the National Association of Independent Insurers, Des Plaines, Ill.
The industry proposal includes other features such as a $50,000 cap for a stand-alone company or insurance group. There would be a floor that would exempt companies with under $25 million in invested assets.
During the summer meeting, it was suggested that the two approaches be blended with further discussion to follow, explained New York Insurance Superintendent Greg Serio. New York was instrumental in advancing the streamlining effort.
The SVO staff should examine the credit risk of a security and not be looking at how that security fits into a companys portfolio, said Marty Carus, a representative of American International Group, New York. Insurers have experienced investment teams that can handle investments, he said.
The discussion at the NAIC meeting followed adoption of a motion to exempt 1- and 2-rated securities by the SVO working group of the NAIC in early June.
The motion, adopted by the SVO Oversight working group, is contingent upon a determination by regulators that the exemption of these securities would be revenue neutral for the NAIC.