Statement: Use of the NR*for RMBS/CMBS to be Discontinued
During the July, 15, 2011 call, Laurie Armstrong, NASVA President, asked the Task
Force to clarify whether it intended to eliminate the use of NR* for RMBS and CMBS
securities.
The question reflects that the Purposes and Procedures Manual of the SVO specifies
that NR* is used only to identify securities that have been placed under regulatory
review. The expectation is that NR*can no longer be used once the Task Force
removes RMBS and CMBS from regulatory review. Laurie clarified her sense that if NR*
can no longer be used then another symbol would be needed. I promised to meet with
Laurie and NAIC staff to discuss the issue.
After discussion, we determined that at the current time, modeled RMBS and CMBS are
identified in the VOS Product with the NR*. The phrase VOS Product refers to the CDROM produced by the SVO and used by insurers as an aid to reporting. The CD-ROM
contains a list of CUSIPs for insurer owned securities with the associated NAIC
Designation and values. So, a decision to take RMBS and CMBS out of regulatory
review means NR* could no longer be used, and that a new symbol is needed to identify
modeled RMBS and CMBS. The continued use of a special symbol is necessary
because insurers are required in their financial statements to use carrying value for
some of these securities and FE, so there is a need to identify those for which the use
of FE is NOT appropriate.
The staff and industry recommended that modeled RMBS and CMBS be identified in
the VOS Product by using the following new symbols in the VOS Product:
*
*
"FMC" for modeled CMBS and
"FMR" for modeled RMBS
Please note that a recently adopted Blanks change requires insurers to use an "FM"
suffix in the statutory financial statements behind the designation derived from the
modeling and comparison to their book/adjusted carrying value. Despite the similarity in
the symbols being discussed, the use of the proposed symbols in the VOS Product
does not in any way impact the Blanks process. The symbols identified above would
only be used in the VOS Product and related NAIC products to facilitate identification of
modeled RMBS and CMBS CUSIPs for insurers.
Both the NAIC IS staff and industry indicated the importance of clarifying this issue
almost immediately because of the need to make system changes both in NAIC and
industry computers. I have authorized the staff to proceed to implement the use of these
two new symbols in the VOS Product for modeled RMBS and CMBS securities.
Because the symbols will be used in an SVO product, it is also necessary to amend the
Purposes and Procedures Manual to include these new administrative symbols, and
explain how and when they are used. I have instructed the SVO staff to prepare the
necessary amendment for discussion and adoption by the Task Force at our next open
meeting.
Statement: Use of the NR*for RMBS/CMBS to be Discontinued
A related issue is the need to ensure that the new blanks process for RMBS and CMBS
are appropriately referenced in the Purposes and Procedures Manual. This is
necessary because the VOS Product will continue to identify RMBS and CMBS not
modeled but rated by an ARO as FE, while the modified filing exempt methodology
which requires the use of carrying value results in different NAIC Designations reported
for the same CUSIP. It is therefore necessary that the insurer use the "AM" and "SM"
suffixes instead of the "FE" suffix for modeled RMBS and CMBS securities.
The amendment to the Purposes and Procedures Manual therefore contemplates two
distinct changes:
1)
Add text to explain the role of the "FMC" and "FMR" symbols in the VOS Product,
link them to the final instructions for modeled RMBS and CMBS and to the "FM" suffix
required in the statutory financial statement.
2)
Add the "FM", "AM", and "SM" suffixes required by statutory financial statements.
These actions and the adoption of final instructions for RMBS and CMBS , a draft of
which was distributed earlier, will permit the Task Force to proceed with a decision to
formally remove RMBS and CMBS from regulatory review.
At this time we felt further action on changes for other loan-backed and structured
securities could be postponed for further discussion. The sense of our discussion was
that if the Task Force decides to retain the modified filing exempt methodology (i.e. the
use of carrying value) for all LBaSS, then the Purposes and Procedures Manual should
incorporate a reference to the "AM" and "SM" suffixes required to be reported in the
statutory financial statements for the reasons already stated for RMBS and CMBS.
Please send any comments to this Statement to Bob Carcano and Richard Newman at
the SVO.