b'Insurance Regulatory | US/NAIC | NAIC Investment-Related Initiatives the supporting rationale reports before changing therequirement to furnish rating rationale reports be treatment of private letter rated securities and givingon a best efforts basis, rather than a firm require-the SVO the power to overrule the private letterment, and that it only become a firm requirement rating. It was clear, however, that if the SVO is able tofor securities issued on January 2, 2022, or later. point to specific problematic issues with private letterThe SVO agreed to make this change.ratings after it has an opportunity to review the rating2. Industry requested that only the rating rationale agencies rationales and methodologies, then part (2)report be required to be filed only at the time of of the SVOs request could well be revisited by theinitial issuance of a private letter rating, and not for Task Force. In addition, the SVO staff stated that itsubsequent changes to the rating. The SVO did not would be scheduling a regulator only call in earlyagree to make this change. The PPIA representative 2021 to review with the Task Force examples ofsuggested as a compromise position that if a private letter rating transactions that the SVO believessubsequent rating rationale report was issued, then should be ineligible for filing exemption, ineligible forit would be required to be filed, but that there Schedule D reporting and/or where there is a materialwould be no requirement to file a subsequent difference in opinion as to the risk. report if one was not required to be issued under The version of the proposal that was actually exposedthe issuers contract with the credit rating provider. for comment included one of the features of the SVOsThis will likely be discussed further between the ask that many observers did not expect to beSVO and the industry representatives. included. It provided that when a private letter and3. Industry requested that language be added to the private letter rationale report are filed for a security, theP&P Manual defining the basis on which the SVO SVO would also evaluate whether the privately-ratedcould determine that a privately-rated security is security is eligible to receive an NAIC designation withineligible to receive an NAIC designation with an a CRP credit rating. In other words, the SVO wouldNAIC CRP credit rating, and requiring the SVO to evaluate (i) whether the security is a fixed-incomeprovide the reasons for rejection, so that the filer security eligible for reporting on Schedule D, and (ii) ifcould challenge the SVOs determination. The SVO so, whether it is eligible for a filing exemption. Thedid not agree to make this change, giving as its proposal would not change the standards for answer- reasons that the eligibility criteria and appeal ing those two questions, but it would establish aprocesses are already contained elsewhere in the checkpoint whereby each private letter rated securityP&P Manual. There was debate on the call as to would actually be examined by an SVO analyst towhether the existing SVO practices would provide determine whether it satisfies those two criteria. transparency to filers as to the reasons why the Representatives of the American Council of Life Insurersanalyst determined a security to be ineligible, and (ACLI), Private Placement Investors Associationthe ACLI representative stated that the com-(PPIA) and North American Securities Valuationmenters would like to discuss this further with the Association (NASVA) submitted a comment letter onSVO offline. The NASVA representative suggested February 5, 2021, and also spoke at the February 18,that when an SVO analyst rejects a security as 2021, meeting of the VOS Task Force regarding theirineligible, that determination should be posted for proposed modifications to the proposal: all to become aware of, and not just made known 1. Industry requested a transition period, such thatto the company whose filing was rejected.for securities issued in the period from and after January 1, 2018, and prior to January 1, 2022, the MAYER BROWN 61'