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ARTICLE · 14 AUGUST 2023

Insurance Regulators' Working Group Adopts Key Bond Definition, Providing Guidance For Equity-Based ABS

Herbert Smith Freehills Kramer LLP
Herbert Smith Freehills Kramer LLP
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Herbert Smith Freehills Kramer LLP

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Culminating a four-year-long process, a key working group of insurance regulators has adopted new standards for determining whether an investment held by an insurance

United StatesFinance and Banking
Laurence Pettit
Laurence Pettit
Daniel Rabinowitz
Daniel Rabinowitz
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Culminating a four-year-long process, a key working group of insurance regulators has adopted new standards for determining whether an investment held by an insurance company should be characterized as a "bond" evidencing a "creditor relationship." This "principle-based" bond definition will have broad implications for insurance company statutory reporting and Risk-Based Capital calculations. The action is of particular relevance for asset-backed securities (ABS) that are based on underlying equity interests, such as collateralized fund obligations (CFOs).

On Aug. 13, the Statutory Accounting Principles Working Group (SAPWG) of the National Association of Insurance Commissioners (NAIC) adopted revisions to Statement of Statutory Accounting Principles (SSAP) No. 26R (Bonds) and SSAP No. 43R (Asset-Backed Securities). The adoption, with an effective date of Jan. 1, 2025, occurred at SAPWG's session as part of the NAIC's Summer National Meeting in Seattle. The revisions

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