At its June 18 meeting, the Valuation of Securities Task Force (VOSTF) of the National Association of Insurance Commissioners (NAIC) voted to expose  a new draft of its controversial proposal, available here, to allow the NAIC’s Securities Valuation Office (SVO) to challenge the filing-exempt (FE) status of an investment asset. Generally speaking, a security may have FE status if it has a rating from a credit rating provider (CRP) that maps to an automatic NAIC designation. Under the proposal, FE status may be withdrawn if SVO removes the rating assigned to the asset by a CRP, which SVO may do if the CRP rating is deemed to be an unreasonable assessment of the investment risk associated with that asset. Responding to industry comments, the revised proposal incorporates additional procedural steps that SVO must follow before the CRP rating may be removed. The proposal’s cover memorandum summarizes the steps as set forth below. The SVO is recommending adoption of this amended proposal over NAIC designations assigned through the FE process with an effective date of Jan. 1, 2026. Comments on the proposal are due on July 26, 2024, for discussion at NAIC’s Summer National Meeting in August.

• SVO staff may identify an FE security with an NAIC designation determined by (that is, mapped from) a rating that appears to be an unreasonable assessment of investment risk.
• The SVO Credit Committee (CC) meets to determine if it agrees that the rating appears to be an unreasonable assessment of investment risk and, if so, places the security “Under Review.”
• If the SVO CC votes to put the security “Under Review,” an information request will be sent to insurers that hold that security, and the SVO administrative symbol “UR” will be assigned to identify the security.
• If the information request is not responded to, SVO may reach out to the insurers’ domiciliary chief financial regulators.
• Upon receipt of all necessary documentation through the information request, SVO will then perform a full analysis of the security. During its review, SVO will coordinate with “insurer(s) authorized to discuss the security” to engage in an “open dialogue” in order to
  1. discuss questions or issues that SVO may have about the security and
  2. respond to any questions that the staff of the authorized insurer(s) may have about SVO’s analysis.
• The SVO CC will reconvene to determine, based on its full analysis of all necessary information, whether the FE NAIC designation is “three or more notches different than [sic] the SVO CC’s opinion” and, therefore, whether SVO should proceed in requesting the removal of the CRP rating.
• If the SVO CC’s decision is to proceed with the CRP rating removal request, the SVO CC and a subgroup of VOSTF (the VOSTF Sub-Group) will meet to discuss the security (the Joint Meeting). The domiciliary regulators of the authorized insurers will be invited to the Joint Meeting and provided with relevant documentation through a confidential website.
  1. The authorized insurers’ staffs, and other authorized parties requested by those insurers to participate, will be invited to present their analysis to the Joint Meeting.
  2. Also at the Joint Meeting, the SVO CC will present its analysis, which may include any information provided to it or independently sourced.
  3. Following the presentations, the SVO CC and the VOSTF Sub-Group will deliberate privately, and the VOSTF Sub-Group will vote on whether it agrees with the SVO CC recommendation and whether the CRP rating will be removed from the FE process.
  4. At the conclusion of the Joint Meeting, the NAIC’s Investment Analysis Office will communicate the decision to the authorized insurers.
• At any time during this process, an alternate CRP rating may be requested. If an alternative CRP rating is received, it will be incorporated into the FE process, if applicable. If there are no alternative CRP ratings, and the VOSTF Sub-Group approves the CRP rating removal, the SVO CC’s assessment will be entered into the NAIC’s electronic platform for insurers.
• An anonymized summary of each unique issue or situation will be published on the SVO’s webpage or some other insurer-accessible location for transparency.
• SVO will identify through SVO administrative symbols when a CRP rating has been removed from the FE process for a security.
• At each NAIC Spring National Meeting, the SVO director will summarize FE discretionary actions taken during the preceding year.