b'INSURANCE REGULATORY|US/NAICare arms-lengthincluding fees,loans in a CLO issued by a portfolio company termination provisions, and the degree ofof a related PE firm.discretion or control of the investment9.There is a concern that disclaimers of affiliation manager over investment guidelines,can be used to avoid disclosure of related-allocation and decisions. party investments, although the new Schedule 4.Owners of insurers may be focused on short- Y, Part 3, is addressing this issue by identifying term results, which may not be in alignment withall entities with 10% or greater ownership, long-term nature of liabilities in life insuranceregardless of disclaimers of affiliation.products. For example: (i) investment10. There has been a material increase in privately management fees, when not fair andstructured securities, which introduce other reasonable, could be a disguised dividend,sources of risk or increase traditional credit risk and (ii) owners of insurers may not be willing to(such as complexity risk and illiquidity risk) and transfer capital to a troubled insurer. involve a lack of transparency.5.Owners of insurers may not have the correct11.The level of reliance on rating agency ratings priorities or the appropriate experience, whichand their appropriateness for regulatory could lead to market conduct issues. Forpurposes (e.g., accuracy, consistency, example, owners who lack expertise in running acomparability, applicability, interchangeability life insurance company may rely excessively onand transparency).third-party administrators, leading to lapse, early surrender and/or exchanges of contracts12.The trend of life insurers in pension risk transfer with in-the-money guarantees and otherbusiness to support such business with the more important policyholder coverage and benefits. complicated investments outlined above.6.There is no uniform definition of PE and there13.Insurers use of offshore reinsurers (including are challenges with maintaining a complete listcaptives) and complex affiliated sidecar vehicles of insurers material relationships with PE firms. to maximize capital efficiency, reduce reserves, 7.There is a lack of identification of related party- increase investment risk and introduce originated investments (such as structuredcomplexities into the group structure.securities), which may create potential conflictsFor the most part, the foregoing list of regulatory of interests and/or hidden fees in the portfolioconsiderations is just thata list of concerns that structure. Assets created and managed bythe various units within the NAIC structure are affiliates may include fees at different levels ofexpected to consider how to address. In fact, the the value chain. final version of the document is annotated with 8.Underlying affiliated investments and/orcross-references to numerous initiatives that other collateral cannot be easily identified within structured security investments, for example, 74|Global Insurance Industry Year in Review 2021'