Recently, the National Association of Insurance Commissioners ("NAIC") Valuation of Securities (E) Task Force received a memo from the Director of the NAIC Securities Valuation Office ("SVO"), recommending an amendment to the filing exemptions that would require principal protected notes that insurance companies purchase to be submitted to the SVO for analysis. Currently, principal protected notes are eligible for a filing exemption and benefit from the same credit rating that would be applicable to the note issuer's senior unsecured debt obligations without having to undergo a separate review or analysis. The SVO memo is available here: The memo makes clear that the SVO is concerned about the exposure provided through such a note to the underlying reference asset, which may be an asset class that may be subject to different risks than those associated with a rated fixed rate bond and may raise concerns for the insurance company buyer and its regulators. The NAIC Valuation of Securities (E) Task Force will have its first opportunity to consider the SVO's recommendation at its meeting on August 4, 2019. Under NAIC policy, any change in SVO filing exemptions will involve an opportunity for interested parties to comment. We will continue to monitor developments in this area.

Originally published in REVERSEinquiries: Volume 2, Issue 7.
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