Proposed Changes to SVO Rules for the Filing

Proposed Changes to SVO Rules for the Filing of Private Letter Ratings PPi. A Winter Meeting January 30, 2017 Boca Raton, FL

Background on Filing Exempt Transactions All securities investments owned by life insurance companies must be assigned an NAIC designation, which can be derived from an NRSRO (also referred to by the SVO as a Credit Rating Provider or CRP) rating, policy or assigned by the SVO. • Publics. For most public securities, the ratings agencies provide an electronic ratings feed to the SVO, which allows those securities to be reported by insurance company holders as “FE”, so no other filing is ever required. Those ratings feeds provide the SVO with support for the insurers’ FE designations. • Privates. Since 2003, the NAIC’s Purposes and Procedures Manual (P&P Manual) has provided that certain investments (e. g. , notes rated by a CRP) are Filing Exempt (FE). Because the P&P Manual is generally silent on private letter ratings, privately rated private placements have been reported in the AVS + database as “Unconfirmed FE” without any supporting evidence. • Insurers are required to maintain support in their files for all FE investments. • Going forward, these investments will appear in AVS + as “To Be Filed with the SVO. ” 2

Background on Filing Exempt Transactions (cont’d) • The present initiative to require the filing of all PLs began after the SVO generated a “Jumpstart Exception Report” showing close to 5, 000 securities being reported as Unconfirmed FE. • The Valuation of Securities Task Force (VOSTF) of the NAIC formed a working group - the Reporting Exceptions Analysis Working Group - to study this issue and to make recommendations to VOSTF. • The PPi. A has been coordinating with ACLI and NASVA leaders, as well as with the ACIC and the agent community, regarding the proposals regarding PLs. 3

* * Reporting Exceptions Analysis Working Group Recommendations * * • On September 12, 2016, the Working Group issued its final PL recommendations to VOSTF. (http: //www. naic. org/documents/cmte_e_rea_wg_160919_final_report_to_vostf. pdf) • Beginning July 1, 2017, “insurance companies [will] be required to verify the credit rating assigned to any private letter securities they own. ” • Verification is to be accomplished either by the submission to the SVO of an electronic feed by the applicable NRSRO or by an insurer manually filing the PL with the SVO. • One issue to be determined is whether the SVO needs a “critical mass” of NRSROs to be able to submit electronic feeds before it can begin accepting any such feeds. • This requirement will apply to ALL transactions, not just new deals (i. e. , no grandfathering of existing deals). • The SVO has stated that it does not have a preference for electronic feeds versus manually filed PLs, so it will implement procedures for both over time. • If an electronic feed is unavailable for any reason, the insurer has the following options (with the first clearly being the best option): • A PDF of the PL that satisfies criteria defined by the SVO can be filed. • The insurer can file the security to receive a designation from the SVO and then hold capital commensurate with the designation subsequently assigned by the SVO. • The insurer can report the security as a 5* or 6* (and reserve accordingly). 4

* * Reporting Exceptions Analysis Working Group Recommendations * * (cont’d) • VOSTF approved the Working Group recommendations at its December 2016 meeting in Miami; however, the Task Force also requested that the SVO make certain changes to its proposed amendments to the Purposes and Procedures Manual regarding private letter ratings. (http: //www. naic. org/documents/cmte_e_rea_wg_exposure_rec_amed_pp_manual_i mp. pdf) • As of 01/25/2017, the revised amendment language has not yet been published by the SVO. • Changes to the proposed P&P Manual amendments requested by VOSTF: • Clarification that the SVO’s AVS Database is not the “sole” source for NAIC Designations. • It is likely that AVS + will be the official source for designations but with a mechanism created for insurers to be able to report data exceptions. • Necessary to allow insurers to continue supplying designations in advance of the SVO officially designating new transactions (e. g. , “Z” designations). • Specify that the SVO cannot exercise its discretion to override an NRSRO PL without approval from VOSTF. [As of today, these final discretion rules have not been written or decided. ] • Incorporate an appeals process into the SVO’s new PL designation process. • The basis for an appeal would be that the SVO did not follow the process defined in the P&P Manual. A designation difference based on data would be reported by the insurer as an exception. 5

Proposed Amendments to the SVO’s P&P Manual • The July 1 effective date for the Working Group recommendations did not change, so the expectation is for the SVO to release the revised amendments to the P&P Manual in early 2017, with VOSTF then to approve as soon as practicable thereafter. • Proposed P&P Manual requirements for manually filed private letter ratings: • Identification – The security being rated must be “specifically identified”. • CUSIP or PPN works. Not clear if reference to issuer, coupon and maturity alone will suffice in the absence of a CUSIP or PPN. An ISIN should also be adequate but this is another of the open implementation issues discussed later that is still to be confirmed. • P&I. The PL must expressly state that the rating applies to the timely payment of principal and interest on the rated security. • Monitoring. The PL must expressly state that the NRSRO will monitor the credit on an ongoing basis and will update the PL at least annually. • The PPi. A drafted a PL template (attached) that the SVO has reviewed and opined is sufficient to meet the new P&P Manual requirements. 6

Open Questions Regarding the Working Group’s PL Recommendations • Will each issuer and applicable NRSRO agree to modify existing PLs to comply with the new requirements? • “Designation Risk” if the filed PL is deemed to be “insufficient” and the SVO rejects. • The SVO believes that Part One, Section 5(d) of the P&P Manual should address any confidentiality concerns, however, the SVO also indicated it would work with issuers, insurers and NRSROs to provide additional comfort, if necessary. (Attached) • What fee schedule will the SVO propose for PLs? • How will the SVO treat unsolicited NRSRO PLs? • There is no mechanism in place today to prevent an unsolicited rating on any security, public or private. The SVO’s expectation is that the PLs would follow a similar process to the existing FE translations. • The mitigants for privates are that (i) this is not likely to happen frequently, and (ii) unless the unsolicited rating is an issue rating, it will have no impact. 7

Open Questions Regarding the Working Group’s PL Recommendations (cont’d) • Conflict resolution if a PL is filed both electronically by NRSRO and by an insurer? • As with FE securities, a filer will be notified if the SVO also receives a rating on the filed security via one of its ratings feeds. • Have coordination/communication among investors to avoid “inadvertent” manual filings of PLs. • Merely an expansion of what is (should be) already occurring for traditional SVO designation filings. • Since no grandfathering of existing deals is currently contemplated, will the SVO reject PLs based on forms that in many cases have been relied upon by insurers for years to report (and reserve) for investments as FE? • IT Issues – Systems issues both at the SVO and with the NRSRO’s need to be resolved to allow for the submission of, receipt by, and processing of electronic feeds (e. g. , interface with the AVS Database, etc. ). • Market participants should conservatively assume that all PLs will have to be filed manually until the SVO provides further guidance on the mechanics for the submission of electronic feeds by the NRSROs. 8

Other Potential Implementation Issues • In new deals with PLs, should the confidentiality language in the NPA be amended to specifically allow the PL to be sent to the SVO either by the NRSRO or an insurer? • The current versions of the Model NPAs do not address private letter ratings at all. The ACIC will consider whether revisions to the Model Forms regarding PLs are warranted. • Should the borrower/issuer be obligated to assist in the process of getting the CRP to submit the PL electronically? • If the CRP cannot submit a PL electronically, should the borrower/issuer be obligated to assist in getting the CRP to redraft the PL, if necessary, to comply with the SVO’s requirements for manually filed PLs? • With respect to existing deals that have a PL, if an unrelated amendment request arises, should investors include these types of NPA changes concurrently with the amendment request? • Other? 9

Next Steps • Communication – make sure all affected constituencies are aware of the proposed changes regarding PLs and are preparing for it. • Continue to follow VOSTF’s approval process, including review of the SVO’s final proposed P&P Manual amendments, when issued. • Insurers to make sure their back offices are prepared to implement these changes. • A meeting among the SVO, NRSRO representatives and PPi. A representatives has been scheduled in Boca Raton prior to the PPi. A’s Winter Meeting on January 30, 2017. 10

Contacts • PPi. A • Brad Ritter, Delaware Investments (215/255 -8918; brad. ritter@delinvest. com) • Sasha Kamper, Principal Global Investors (515/248 -2046; kamper. sasha@principal. com) • Brian Keating, Guardian Life (212/598 -7570; brian_keating@glic. com) • Stuart Shepetin, Genworth Financial (203/708 -3358; stuart. shepetin@genworth. com) • ACLI • Michael Monahan, ACLI (202/624 -2324; mikemonahan@acli. com) • NASVA • Laurie Armstrong, Principal Global Investors (860/768 -0115; armstrong. laurie@principal. com) • Michelle Werner, AIG (713/831 -8301; michelle. werner@aig. com) • SVO • Charles Therriault, Director (212/386 -1920; ctherriault@naic. org) 11

Draft PL Template [NRSRO Letterhead] [Date] Dear _______: Re: Private Letter Rating for an Aggregate of $90 Million of Senior Notes (defined below) Issued by XYZ Corporation (“Issuer”) This rating letter applies to the following senior notes issued by Issuer (collectively, the “Notes”): $30 Million of 5. 00% Senior Notes due August 12, 2023 (CUSIP 123456@AA 1); $30 Million of 5. 15% Senior Notes due August 12, 2026 (CUSIP 123456@AB 2); and $30 Million of 5. 25% Senior Notes due August 12, 2028 (CUSIP 123456@AC 3) As of the date hereof, [NRSRO] affirms that: the private rating for the above Notes is BBB, and the Outlook is Stable. [NRSRO’s] rating on the Notes specifically reflects our assessment of the Issuer’s ability to make timely payment of principal and interest on the Notes pursuant to the terms governing the Notes on the date hereof. Further, [NRSRO] monitors its rating on the Notes on an ongoing basis and will update this rating letter at least annually. [NRSRO boilerplate language. ] Please contact [John Smith] at (111)-1111 if you have any comments or questions. Sincerely, [NRSRO] ______________ Name: ___________ Title: ____________ 12

P&P Manual: Part One, Section 5(d) Statement of Practice: The SVO routinely receives financial information, legal documents and other data from reporting insurance companies so that it may assess the reported investment for the NAIC. While the NAIC is not a guarantor of the confidentiality of information submitted to the SVO, the SVO does not redistribute documents obtained in the course of its work for other than regulatory purposes or as may be required by law. The NAIC does, however, respect copyright and will not reproduce or externally distribute copyrighted documents without permission. 13