NAIC's ‘Bond' Definition — Latest Developments

Insurers and others are closely following efforts by the National Association of Insurance Commissioners (NAIC) to develop a new, comprehensive, "principles-based" definition of debt securities for purposes of insurers' reporting requirements. Interested parties should consider developments on this front, including draft guidance, from the NAIC's Fall National Meeting, at which the Statutory Accounting Procedures Working Group (SAPWG) met on Dec. 11. The guidance that SAPWG has voted to expose for public comment relates to reporting of various types of debt instruments and assessing credit enhancement for purposes of classifying asset-backed securities (ABS) as debt.

By way of brief background, this project began in the summer of 2019, when the NAIC announced that it would classify "collateralized fund obligations," or CFOs (ABS in which the underlying collateral consists of private equity fund interests), as equity securities for purposes of risk-based