The proposed disclosure, which follows similar action by the Financial Accounting Standards Board, would require insurers to disclose financial position, financial performance and cash flow information to regulators with respect to credit default swaps, credit spread options, and credit index products, as well as hybrid instruments that have embedded credit derivatives and other guaranty-type contracts.
The proposed disclosure, which would apply to NAIC annual statements filed after Dec. 31, 2008, comes as state insurance commissioners and other regulators continue to examine the role credit default swaps have played in the ongoing credit crisis. The NAIC plans a public hearing on the matter at their winter meeting in December, and public comments on the proposal are due by Nov. 10.
Credit default swaps played a major role in the financial troubles experienced at American International Group Inc., which has disclosed writing more than $500 billion of the financial instruments through June of this year, as well as at major financial guaranty insurers, many of whose guaranties of structured products like mortgage-backed securities and collateralized debt obligations were written in swap form.