b'Insurance Regulatory | US/NAICNAIC Investment-Related Initiatives A fundamental element of US insurance regulation is monitoring the safety and soundness of insurers, and a big part of that task involves regulating the types of investments made by insurers. Like most aspects of US insurance regulation, the regulation of insurers investments is a function of state law, although the NAIC has developed a framework for how insurer investments are treated for statutory accounting, financial reporting and risk-based capital (RBC) purposes that the states generally follow.The NAIC committee that addresses financial regulation is the Financial Condition (E) Committee (often called the E Committee). Like all NAIC committees, it is composed of state insurance commissioners or their designated staff members. The E committee cur-rently has 38 subgroups that focus on different aspects of the financial regulatory landscape. In this article, we will discuss some 2020 initiatives of two of those subgroupsthe Valuation of Securities (E) Task Force (VOS Task Force) and the Statutory Accounting Principles (E) Working Group (SAP WG)that could significantly affect the regulatory treatment of certain insurance company investments.Principal Protected Securities Lose Their Filing ExemptionThe VOS Task Force oversees the NAICs Securities Valuation Office (SVO), which is respon-sible for assessing the credit quality of securities owned by insurers. The SVOs operations are governed by the Purposes and Procedures Manual of the NAIC Investment Analysis Office (the P&P Manual). One of the key elements of the P&P Manual is a procedure for insurers to file information about their bond and preferred stock investments with the SVO, so that the SVO can perform a credit quality assessment and assign a designation (essentially equiva-lent to a rating) between NAIC-1 and NAIC-6, with NAIC-1 indicating the lowest credit risk and NAIC-6 the highest credit risk. The RBC factors associated with these investments are highly sensitive to the NAIC designations. Currently, the pre-tax RBC factors for a life insurer are 40 basic points (bps) for an NAIC-1 investment, 130 bps for an NAIC-2 investment, 460 bps for an NAIC-3 investment and 1,000 bps for an NAIC-4 investment.In 2004, the P&P Manual was amended to include a filing exempt rule, granting an exemption from filing with the SVO for certain bonds and preferred stock that have been assigned a current, monitored rating by an NAIC-recognized credit rating provider (CRP). Under the filing exempt rule, the CRP rating is converted to the equivalent NAIC designation for statu-tory reporting and RBC purposes. The vast majority of fixed-income investments of insurers benefit from this filing exemption.MAYER BROWN 57'