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

Disclaimer: Asset Allocation & Management Company, LLC (AAM) is an investment adviser registered with the Securities and Exchange Commission, specializing in fixed-income asset management services for insurance companies. This information was developed using publicly available information, internally developed data and outside sources believed to be reliable. While all reasonable care has been taken to ensure that the facts stated and the opinions given are accurate, complete and reasonable, liability is expressly disclaimed by AAM and any affiliates (collectively known as “AAM”), and their representative officers and employees. This report has been prepared for informational purposes only and does not purport to represent a complete analysis of any security, company or industry discussed. Any opinions and/or recommendations expressed are subject to change without notice and should be considered only as part of a diversified portfolio. A complete list of investment recommendations made during the past year is available upon request. Past performance is not an indication of future returns.

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Disclaimer: Asset Allocation & Management Company, LLC (AAM) is an investment adviser registered with the Securities and Exchange Commission, specializing in fixed-income asset management services for insurance companies. Registration does not imply a certain level of skill or training. This information was developed using publicly available information, internally developed data and outside sources believed to be reliable. While all reasonable care has been taken to ensure that the facts stated and the opinions given are accurate, complete and reasonable, liability is expressly disclaimed by AAM and any affiliates (collectively known as “AAM”), and their representative officers and employees. This report has been prepared for informational purposes only and does not purport to represent a complete analysis of any security, company or industry discussed. Any opinions and/or recommendations expressed are subject to change without notice and should be considered only as part of a diversified portfolio. Any opinions and statements contained herein of financial market trends based on market conditions constitute our judgment. This material may contain projections or other forward-looking statements regarding future events, targets or expectations, and is only current as of the date indicated. There is no assurance that such events or targets will be achieved, and may be significantly different than that discussed here. The information presented, including any statements concerning financial market trends, is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. Although the assumptions underlying the forward-looking statements that may be contained herein are believed to be reasonable they can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. AAM assumes no duty to provide updates to any analysis contained herein. A complete list of investment recommendations made during the past year is available upon request. Past performance is not an indication of future returns. This information is distributed to recipients including AAM, any of which may have acted on the basis of the information, or may have an ownership interest in securities to which the information relates. It may also be distributed to clients of AAM, as well as to other recipients with whom no such client relationship exists. Providing this information does not, in and of itself, constitute a recommendation by AAM, nor does it imply that the purchase or sale of any security is suitable for the recipient. Investing in the bond market is subject to certain risks including market, interest-rate, issuer, credit, inflation, liquidity, valuation, volatility, prepayment and extension. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission.