AAM Investment Accounting Update – Second Quarter 2013

Global Legal Entity Identifier (LEI)

A recent reporting requirement will impact insurers’ statutory filings and increase transparency for regulators and risk managers. The accounting update below discusses the new Global Legal Entity Identifier (LEI) program, its benefits to the finance industry, and the related NAIC reporting requirements.

Background

With the desire of the global community to identify systematic risk, it has been determined that a key component to managing risk is having a consistent global identifier for every legal entity. The Legal Entity Identifier program was created by the G20 and the Financial Stability Board (FSB). It was designed to create and apply a single, universal standard identifier on an international basis to any organization or firm (including insurance companies) involved in issuing derivative contracts or other financial securities. The LEI system is a unique, 20 character, alphanumeric code. Local Operating Units around the globe will assign LEIs, as well as validate and maintain reference data. In August 2012, the Depository Trust & Clearing Corporation and SWIFT (a global provider of secure financial messaging services) launched a website (www.ciciutility.org), which includes interim identifiers called US Commodity Futures Trading Commission Interim Compliant Identifiers (CICIs). Once the global LEI system is implemented and operational, it is expected that the CICI’s will transition into the global LEI system. Progress updates can be found on the FSB website www.financialstabilityboard.org/publications.

Benefits of using a Global Legal Entity Identifier

A universal standard identifier for each legal entity will allow regulators to complete more accurate global data aggregations for systemic risk across related issuers, asset classes and geographies. It will also allow for regulators to better identify concentrations and emerging risks, improve risk management capabilities, and facilitate information sharing. For risk managers in financial institutions, the global LEI system will increase the effectiveness of tools used to identify exposures to counterparties.

NAIC Requirement

Effective March 31, 2013, the NAIC has added an electronic-only column to the annual and quarterly detail investment schedules. This new column should include the LEI numbers for mortgagors, counterparties, depositories, and the issuers of equity and fixed income securities. However, it is important to note that the Global LEI system has not yet been implemented. Therefore, LEI numbers are not currently available. Further, the NAIC does not require insurers to report the interim CICIs. The NAIC is monitoring the development of the global LEI system and will post updates to the Blanks E Working Group web page http://www.naic.org/committees_e_app_blanks.htm.

Written by:

Stacy L. Crook
Vice President, Investment Accounting

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