Modernizing SVO Filings

Submitted by Cynthia Braman on Wed, 04/19/2017 - 11:50am

By Jeff Clevinger, Booke P&C Instructor

Businessperson at the computer.The Valuation of Securities Task Force at the NAIC has established a project team tasked with modernizing the process for filing securities with the Securities Valuation Office (SVO).  The project team includes representatives from the SVO, the American Council of Life Insurers (ACLI), The North American Securities Valuation Association (NASVA) and the Private Placement Investors Association (PPIA). 

The current system wasdeveloped over twenty years ago in a paper-based environment.  The project team hopes to automate some processes currently being performed manually and reduce the amount of time it takes the industry to file a security and the amount of time it takes for the SVO to perform their analysis.

Another goal is to level out the workload of SVO staff.  The majority of filings are completed in the latter half of the year, underutilizing SVO resources earlier in the year.  Currently, companies must complete a filing within 120 days of acquiring a security.  With increased usage of automation, the project team expects that time frame to be reduced.

Currently, a single security filing is performed by a single party.  Another goal is to open up the process and allow multiple insurers to contribute to an individual security filing as well as allowing third parties to contribute to the filing.

Today, if an insurer owns a security that is not eligible for the filing exemption and the security is not rated by the SVO, then, the insurer assigns the NAIC Designation and attaches the “Z” suffix to the rating.  The project team has discussed the idea of requiring the SVO assign the NAIC Designation for such securities.

Considerable discussion has taken place about changing the “Lead Lender Rule”.  This rule places responsibility for completing a security filing with the insurer that has the largest investment in the security.  Large insurers complete the vast majority of filings since they are the ones most likely to have the largest investment in a security and the most likely to purchase securities not eligible for the filing exemption (not rated by the major credit rating agencies).

The filing insurer is not only responsible for doing the research and completing the required paperwork, this insurer also pays the required fee for the SVO to analyze and rate a security.  This process creates a disincentive to file securities with the SVO… “So if we wait, maybe someone else will do the work and pay the fee”.

Understandably, the large insurers are in favor of changing the lead lender rule.  Based on the direction of current discussions, it appears that the SVO filing fee will be replaced by some form of an industry assessment.  This will spread the cost of SVO ratings much wider than the current process.

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