b'Insurance Regulatory | US/NAIC | NAIC Investment-Related Initiatives 5. The insurer or members of its affiliated group areForce, publicly disagreeing with one of the comment the sole investors in the security; or letters and declaring that the SVO should have the 6. An affiliate of the insurer is the underwriter orability to decide on a deal-by-deal basis whether to sponsor of the security. recognize a CRP rating for purposes of the filing exemption. The advance materials for the Task Forces The treatment of bespoke securities proposed inNovember 2020 meeting included a copy of the 2010 the IAO issue paper was more nuanced than thereport and recommendations of an NAIC Rating treatment that PPS receive as of January 1, 2021. ItAgency (E) Working Group that was formed in 2009 (in included the following proposals: response to the financial crisis) to evaluate the insur- The SVO would get to review the legal agree- ance regulatory use of rating agencies. Everything ments underlying bespoke securities andseemed to point to the VOS Task Force taking another make a decision on whether the CRPs rating ismajor step to narrow the use of the filing exemption.acceptable for determining the NAIC designationWhen the VOS Task Force met on November 18, or whether the security needs to be filed for an2020, the SVO asked for two things:SVO-determined designation. 1. First, the SVO recommended that, beginning onThe analysis supporting the assignment of anyJanuary 1, 2022, when private letter rating securi-private letter rating would also need to be submit- ties are filed with the SVO, the related private ted to the SVO for review at least annually. Therating letter rationale report must also be filed to SVO would have the authority to determine if itprovide more in-depth analysis of the transaction, would rely upon the private rating or require thethe methodology used to arrive at the private security to be filed. rating and discussion of the transactions credit,At least two independent CRP ratings would belegal and operational risks and mitigants. required for any NAIC designation to be derived2. Second, the SVO recommended that it be given from CRP ratings, and the lower of the ratingsfull discretion, based on its reasonable review of would be applied. In the absence of two CRPthe private rating letter and the supporting ratings, the security would need to be filed forrationale report, to:analysis by the SVO.With regard to CRPs, the IAO issue paper proposed Assign an NAIC designation equivalent to the that the SVO be tasked with monitoring CRP ratingsprivate letter rating; and methodologies on a case-by-case basis and Require the security to be filed for review; or determining how they are used in the filing exemp-Decline to assign any NAIC designation, on the tion processwith a goal of achieving the greatestbasis that the security cannot be reported as a consistency and uniformity in the production ofbond or a loan-backed or structured security NAIC designations while maximizing the alignmenton Schedule D of the insurers statutory finan-between the assessment of investment risk to thecial statements.NAICs statutory objectives. After a vigorous debate, the VOS Task Force voted to The comment period for the bespoke securitiesexpose part (1) of the SVOs proposal for a 60-day issue paper ended in August 2020. Comment letterscomment period (ending February 5, 2021)but not were received from both life and property-casualtypart (2). The consensus of the Task Force was to first insurance trade associations. In September 2020, theenhance the transparency of private letter ratings and parent E committee sent a letter to the VOS Tasksee what patterns emerge from the SVOs review of 60 GLOBAL INSURANCE INDUSTRY|YEAR IN REVIEW 2020'