Snapshot Investment Summary

Snapshot Investment Summary

 The Snapshot Investment Summary on iSite+ provides an analytical tool for reviewing the investment portfolios of companies.  It is meant solely for use by Insurance Department regulators and is designed to serve as a guide for highlighting potential areas of concern.  It is not meant to be a replacement for a more comprehensive understanding of an insurer’s investment practices and strategies.  The summary relies on annual statement filings from insurers, with data becoming available approximately one month after annual statement filings are filed. 

This application is different from the Investment Sections of the Financial Profiles.  It considers some data elements and breakdowns of risk that are outside the FDR database and scope of Profiles summary.

 Disclaimer:  Information contained in the report is as of the date of the request (“Report Date”).  Specific data may change from that date, both for the individual company and for the industry composite as new filings and amendments are received from companies.  Also, the data for different sections of the report may come from different parts of a company’ statement filing, and result in immaterial differences in the totals.

 In addition to providing detailed information on the company’s investment portfolio as of the latest year end, the report also compares that information with the prior year end.  As a second point of reference, the most recent year end data is compared with an industry composite.

 Year over year Comparison – Data from the current year annual statement stored in the NAIC FDR database and the immediate prior year annual statement will be provided. Users should not expect significant changes from one year to the next in either different Asset Classes, or among the detail lines in the report.  Significant changes would indicate a shift in the insurer’s investment strategy or a market driven change in the investment profile.  Significant changes in an insurer’s investment portfolio warrants additional consideration as it may indicate changes in the credit or cash flow profile.  Different asset classes also frequently require different expertise and systems for analyzing and monitoring.

 Disclaimer:  If the reporting format changes per the NAIC Blank and/or Instructions, the year over year comparison may not be comparable for all categories.  Specific notice of each situation will be provided as needed.

 Industry Composite – The report will generate, as a reference point, a comparison with the aggregate in industry holdings across each asset class and detail.  Normally, the investment portfolio of an insurer would be similar to other insurers.  Small differences can be due to a number of factors, including differences in product lines.  Larger differences warrant further consideration.  General market conditions in terms of flow of investment product are similar for all insurers.  Significant overweight in one asset class, and the resulting underweight in others, may indicate a specific strategic decision on the part of investment management.  That strategic decision should be explored, and it should be determined if the insurer has the appropriate resources for supporting the different investment profile.

 Accessing the report:

1. Choose the specific company
2. On the Report Categories screen, under Financial Analysis/Examination, choose Snapshot Investment Summary

 Investments by Asset Class:

• Corporate Bonds – This includes Issuer Obligations from Industrial and Miscellaneous and Credit Tenant Loans.  This includes non-government Public Utilities for 2009 data, but 2008 data includes all Public Utilities since “Public Utilities” was a separate line item prior to 2009. Thus, government Public Utilities will be included in the 2008 data but excluded from the 2009 data.  Unaffiliated holdings only.
• Structured Securities – All Single Class and Multiclass assets.  Unaffiliated holdings only.  These are also bonds, but are distinct from Issuer Obligations in that a single corporate entity is not primarily, either directly or indirectly, responsible for payment of interest and repayment of principal.  Instead cash flows are dependent on a fixed pool of assets.  As such, analysis of the likelihood of repayment and the cash flow profile is distinct.  This includes potential variability in the timing of cash flows and implications of nonpayment from the underlying assets.  This line includes Structured Securities of Government Sponsored Entities (GSE’s), e.g.FNMA, FHLMC and GNMA.  The line includes both Single Class Securities, otherwise known as pass-through securities, as well as Multi-class Securities, often referred to as CMO’s.  All asset types are included: e.g. RMBS, CMBS and other ABS.
• All Government Issues – This includes Issuer Obligations for US Government, All Other Governments (Foreign governments and subdivisions), US States, territories and Possessions and Political Subdivisions of those, and US Special Revenue and Special Assessment Obligations.  This includes Issuer Obligations, i.e., not Structured Securities, of political entities, both foreign and domestic.  Municipal bonds are included here.  Analysis of these issues includes public policy considerations including local budgets and taxing authority that support repayment.
• Hybrid/Capital Securities – Hybrid and Capital Securities are treated as bonds for statutory accounting reasons.  However, most of the securities include provisions that are not typical for bonds, such as the ability for the issuer to defer payment of principal or interest for an indefinite period.  Often issued by financial institutions, there also may be triggers related to regulatory considerations.
• Preferred Stock – Unaffiliated holdings only
• Common Stock – Unaffiliated holdings only
• Commercial Mortgages * - Unaffiliated holdings only.  Loans secured by commercial properties.
• Mezzanine Loans * - Unaffiliated holdings only.  Loans secured by an equity interest in an entity that is also a borrower under a mortgage loan.  While effectively secured by an interest in the property, these loans are subordinate to the mortgage loan.
• Real Estate Equity – Unaffiliated holdings only
• Schedule BA
• Affiliated Investments

 * Commercial mortgages and mezzanine loans include life and fraternal statement types only.  All other statement types account for less than 1.5% of the mortgage loans in total for the entire insurance industry.

 Asset Class Details:

 Corporate Bonds, Structured Securities, All Government Issues and Preferred Stock Groupings are grouped together as either NAIC 1-2 or NAIC 3-6.  NAIC 1-2 are considered investment grade, whereas NAIC 3-6 are below investment grade.  Within Structured Securities, Agency Securities are broken out as a separate line item.  For purposes of credit risk, these are considered US Government equivalents.  All Government Issues includes U.S. Government issues, but also includes state and local government obligations, as well as issues of non-U.S. political entities, which can carry lower ratings.  Besides having more credit risk, below investment grade investments also tend to have greater market value volatility.  These two factors suggest a need for more experienced investment management and more sophisticated portfolio monitoring capabilities.

 Common stock is divided between those Publicly Traded Common Stock and all other investments that are included in this asset class.  Publicly Traded Common Stock, from the Summary Investment Schedule, consists of common stock, master limited partnerships that trade as common stock, American Deposit Receipts and common stock warrants, if they are traded on the New York, American or NASDAQ Exchanges.

 NAIC Designations:

• NRSRO Rated – Otherwise classified as Filing Exempt securities where the NAIC Designation is derived based on a set of rules from NRSRO ratings.
• Negative Watch - A subset of NRSRO Rated.  These are holdings as of a specific point in time (year end) that the NRSRO's feel are at risk, or likely to be downgraded.  As a percent of the total holdings that are NRSRO rated, it represents that portion of the portfolio where a significant change in the credit profile, as represented by the NRSRO rating, is imminent, and therefore where a change in the NAIC designation and the RBC factor is imminent.  From an investment portfolio perspective, there is a directional aspect.  Higher percentages, especially comparing one year to the next, suggests greater risk.
• Modeled - For year end 2009, NAIC designations for Residential Mortgage-Backed Securities (RMBS) are derived based on a process which compares expected values with an insurer’s carrying value.  Beginning with year end 2010, this new process will be continued for RMBS and will be expanded to include Commercial Mortgage-Backed Securities (CMBS).
• SVO Assigned – Securities assigned a designation after analysis by the Securities Valuation Office.
• Neither - Any securities that do not fall into one of the earlier categories will be included here.  This includes blank entries and designations assigned by the insurer without verification from any of the above.

 Bond Characteristics:

Column 5 of Schedule D, Part 1, includes a code for each of the following:

1.         Call Option – Securities where the issuer has the option to prepay a bond at a fixed price, but not the obligation.

2.         Vary Payment Timing – Securities where the issuer has the right to vary the timing of principal or coupon payments, such as mortgage-backed securities.  The variation in payment timing is a function of cash flow received and redistributed to investors, either proportionally, as in a Single Class security, or according to a schedule, as in a Multi-class security.

3.         Variable Coupon – Securities where the coupon can vary, but not based on a traditional fixed spread to an interest rate related index.  Includes equity-linked securities.

4.         Non-principal Protected – Contractual terms that may result in principal not being paid in full.  Examples include insurance-linked securities and interest-only strips.

5.         Linked to Foreign Currency – Securities where the payments are subject to foreign exchange rates even though the security itself is not denominated in a currency other than US dollars.

6.         Linked Credit – Securities where the probability of repayment is tied to a credit other than the issuer.

7.         Other Options

These Bond Characteristics are not mutually exclusive; it is possible for a bond to be contained in more than one group.  The Bond Characteristics column is applicable to all bonds.  The percent of total for each characteristic represents the aggregate of Corporate Bonds, Structured Securities, Government Issues and Hybrid/Capital Securities that have that particular characteristic.

 Maturity:

1. One year or less
2. One to Five years
3. Five to Ten tears
4. Ten to Twenty years
5. Over Twenty years

 Collateral Type:

Column 26 from Schedule D, Part 1.  Only applicable to securities listed under Industrial and Miscellaneous, whether Single Class or Multiclass.  Agency securities are not included.

• RMBS Prime – RMBS where the borrowers at the time of origination were considered better credit risk.  The determination is usually a function of the borrower’s credit score.
• RMBS Non-Prime
• RMBS Home Equity – RMBS where the underlying assets are not first liens.
• RMBS Other
• CMBS – Structured securities where the underlying assets are commercial property loans
• ABS CDO/CLO
• ABS Other - This includes credit cards, auto loans, student loans, aircraft leases, equipment leases, trade receivables, loans and other.

The percent of total is the amount for that specific collateral type as a percent of total under Industrial and Miscellaneous for Single Class or Multi-Class Mortgage-backed/Asset Backed Securities.

Drill-down reports are available through selecting a value in the Annual Statements column. After clicking on a value, there will be a prompt allowing the user to open or save a Microsoft Excel spreadsheet containing the following data:

• CUSIP
• Issuer Name
• Report Designation
• Actual Cost
• Par Value
• Fair Value
• Bacv
• CUSIP Grouping Section
• Moody’s Debt Type
• Moody’s Shelf Registration
• S&P Collateral Type
• S&P Instrument Type
• Fitch Market Sector

 Foreign Investments

 Limitations of the Snapshot Investment Summary

The Snapshot Investment Summary is intended as a tool to guide users to areas of an insurer’s investment portfolio that warrant further consideration and review.  To the extent that the report highlights potential areas of concern, it is important to take the next step.  That would include discussions with the insurer and/or more detailed analysis of the specific asset class.  Staff at the NAIC are available to assist in that analysis.