Regulators gave initial approval to a proposal to exempt lower rated securities purchased by insurers from filing with an arm of the National Association of Insurance Commissioners.
During the winter NAIC meeting, regulators agreed to exempt securities that NAICs Securities Valuation Office rates 3-6 if those securities are rated by a nationally recognized statistical rating agency. NRSROs are rating agencies.
The SVO unit is the securities filing and rating unit for the NAIC. Rated securities from SVOs range from the highest investment grade ratings of 1 and 2, to lower ratings of 3-6.
In March, the New York insurance department initiated a project to streamline the SVO unit of the NAIC, based in Kansas City, Mo.
The first phase of the effort exempted securities rated 1 and 2. The second part of the streamlining exempts 3-6s.
Changes to the electronic filing system to reflect the exemption for 1 and 2 rated securities should be in place starting Jan. 1, 2004, with adjustments for the lower rated securities in place at a later time, according to regulators speaking at the Securities Valuation Office oversight working group.
The streamlining efforts are part of an overall effort at the NAIC to make regulatory oversight more efficient.
Insurance representatives said the second phase of securities exemptions was a positive move.
“We are very supportive of the New York departments proposal. Clearly, it demonstrates that the SVO has been echoing the work of rating agencies,” says Doug Barnert, president of Barnert International, New York. It will help reduce cost and create efficiency, he adds. According to Barnert, a company still has to get a rating agency to sign off on the security.
Additionally, he says, most states have laws that limit the amount of lower rated securities that an insurer may hold.
A representative for a large life insurer expressed support for the elimination of efforts that he said duplicated the work of rating agencies.
The work has received support from major trade groups including the American Council of Life Insurers, the National Association of Independent Insurers and the National Association of Mutual Insurance Companies.
Reproduced from National Underwriter Life & Health/Financial Services Edition, December 12, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.