© 2019-2020 National Association of Insurance Commissioners 1 109/254/201920
MORTGAGES
LR004
Basis of Factors
Mortgages in Good Standing
The pre-tax factors for commercial mortgages were developed based on analysis using the Commercial Mortgage Metrics model of Moody’s Analytics and documented in a report
from the American Council of Life Insurers on March 27, 2013. The factors provide for differing levels of risk, the levels determined by a contemporaneous debt service coverage
ratio and the contemporaneous loan-to-value. The 0.14 percent pre-tax factor on insured and guaranteed mortgages represents approximately 30-60 days interest lost due to possible
delay in recovery on default. The pre-tax factor of 0.68 percent for residential mortgages reflects a significantly lower risk than commercial mortgages. The pre-tax factors were
developed by dividing the post-tax factor by 0.7375 (0.7375 is calculated by taking 1.0 less the result of 0.75 multiplied by 0.35). The pre-tax factors are not changing for 2018 due to
tax reform.
Mortgages 90 Days Overdue, Not in Process of Foreclosure
The category pre-tax factor for commercial and farm mortgages of 18 percent is based on data taken from the Society of Actuaries “Commercial Mortgage Credit Risk Study.” For
insured and guaranteed or residential mortgages, factors are set at twice the level for those “in good standing” to reflect the increased likelihood of default losses.
Mortgages in Process of Foreclosure
Mortgages in process of foreclosure are considered to be as risky as NAIC 5 bonds and are assigned the same category pre-tax factor of 23 percent for commercial and farm
mortgages.
Due and Unpaid Taxes on Overdue Mortgages and Mortgages in Foreclosure
The factor for due and unpaid taxes on overdue mortgages and mortgages in foreclosure is 100 percent.
Specific Instructions for Application of the Formula
Column (1)
Insured or guaranteed mortgages should be reported separately from residential and commercial mortgages. Insured or guaranteed loans include only those mortgage loans insured or
guaranteed by the Federal Housing Administration, under the National Housing Act (Canada) or by the Veterans Administration (exclusive of any portion insured by FHA). Mortgage
loans guaranteed by another company (affiliated or unaffiliated) are not to be included in the insured or guaranteed category.
Except for Lines (1) through (3), (26) and (27), calculations are done on an individual mortgage basis and then the summary amounts are entered in this column for each class of
mortgage investment. Refer to the mortgage calculation worksheet A (Figure 1) for how the individual mortgage calculations are completed for Other Than In Good Standing
mortgages on Lines (16) through (25). Refer to the mortgage calculation worksheet – company developed (Figure 3) for how the individual mortgage calculations are completed for
In Good Standing - Commercial mortgages on Lines (4) through (8) and for In Good Standing - Farm mortgages on Lines (10) through (14). Line (28) should equal Page 2, Column 3,
Lines 3.1 plus 3.2, plus Schedule B, Part 1 Footnotes 3 and 4, first of the two amounts in the footnotes.
Column (2)
Companies are permitted to reduce the book/adjusted carrying value of mortgage loans reported in Schedule B by any involuntary reserves. Involuntary reserves are equivalent to
valuation allowances specified in SSAP No. 37 paragraph 16. These reserves are held as an offset for a particular troubled mortgage loan that would be required to be written down if
the impairment was permanent.
© 2019-2020 National Association of Insurance Commissioners 2 109/254/201920
Column (3)
Column (3) is calculated as the net of Column (1) less Column (2).
Column (4)
Summary amounts of the individual mortgage calculations are entered in this column for each class of mortgage investments. Refer to the mortgage calculation worksheet (Figure 1).
Cumulative writedowns include the total amount of writedowns, amounts non-admitted and involuntary reserves that have been taken or established with respect to a particular
mortgage.
Column (5)
For Lines (4) and (10), the pre-tax factor is equal to 0.0090
For Lines (5) and (11), the pre-tax factor is equal to 0.0175
For Lines (6) and (12), the pre-tax factor is equal to 0.0300
For Lines (7) and (13), the pre-tax factor is equal to 0.0500
For Lines (8) and (14), the pre-tax factor is equal to 0.0750
For Lines (26) and (27), the pre-tax factor is 1.0. For Lines (16) through (25), the average factor column is calculated as Column (6) divided by Column (3).
Column (6)
For Lines (4) through (8), (10) through (14) and (16) through (25), summary amounts are entered for Column (6) based on calculations done on an individual mortgage basis. Refer to
the mortgage calculation worksheets (Figure 1) and (Figure 3). For Lines (1) through (3), (26) and (27), the RBC subtotal is multiplied by the factor to calculate Column (6).
© 2019-2020 National Association of Insurance Commissioners 3 109/254/201920
(Figure 1)
Mortgage Worksheet A
Other Than In Good Standing
(
1
)
(
2
)
(
3
)
(
4
)
(
5
)
(
6
)
(
7
)
(
7a
)
(
8
)
(
9
)
(
10
)
Name / ID
Book/Adjusted
Carr
y
in
g
Value
Involuntary
Reserve
Ad
j
ustment
§
RBC
Subtotal
£
Cumulative
Writedowns*
Category
Facto
r
In Good
Standing
Facto
r
In Good
Standing
Cate
g
or
y
Col (6) X
[Col
(4)+(5)]
- Col
(
5
)
Col (4) X
Col
(
7
)
RBC
Re
q
uirement
‡
(1) All Mortgages Without
Cumulative Writedowns
XXX
†
†
†
All Mortgages With
Cumulative W
r
itedowns:
(2)
†
†
†
(3)
†
†
†
(4)
†
†
†
(5)
†
†
†
(6)
†
†
†
(7)
†
†
†
(8)
†
†
†
(9)
†
†
†
(10)
†
†
†
(
11
)
†
†
†
(
12
)
†
†
†
(
13
)
†
†
†
(
14
)
†
†
†
(
15
)
†
†
†
Total Mort
g
a
g
es
This worksheet is prepared on a loan-by-loan basis for each of the mortgage categories listed in (Figure 2) that are applicable. The Column (2), (3), (5) and (10) subtotals for each
category are carried over and entered in Columns (1), (2), (4) and (6) of the Mortgages (LR004) in the risk-based capital formula. Small mortgages aggregated into one line on
Schedule B can be treated as one mortgage on this worksheet. NOTE: This worksheet will be available in the risk-based capital filing software.
†
See (Figure 2) for factors to use in the calculation. The In Good Standing Factor will be based on the CM category developed in the company generated worksheet (Figure 3) and
reported in Column 7a for Commercial or Farm Mortgages.
‡
The RBC Requirement column is calculated as the greater of Column (8) or Column (9), but not less than zero.
§
Involuntary reserves are reserves held as an offset to a particular asset that is clearly a troubled asset and are included on Page 3, Line 25 of the annual statement.
£
Column (4) is calculated as Column (2) less Column (3).
* Cumulative writedowns include the total amount of writedowns, amounts non-admitted and involuntary reserves that have been taken or established with respect to a particular
mortgage.
© 2019-2020 National Association of Insurance Commissioners 4 109/254/201920
(Figure 2)
The mortgage factors are used in conjunction with the mortgage worksheets (Figures 1 and 3) to calculate the RBC Requirement for each individual mortgage. The factors are used in
Columns (6), (7) and (7a) of the mortgage worksheet and are dependent on which of the 25 mortgage categories below the mortgage falls into. The following factors are used for each
category of mortgages:
Mor
t
g
a
g
e Facto
r
s
LR004 Line
N
umbe
r
Cate
g
or
y
Facto
r
†
In Good
Standin
g
Facto
r
MEA Facto
r
In Good Standin
g
(1) Residential Mort
g
a
g
es-Insured o
r
Guarantee
d
N
/A
‡
0.0014
N
/A
(2) Residential Mort
g
a
g
es-All Othe
r
N
/A
‡
0.0068
N
/A
(3) Commercial Mort
g
a
g
es-Insured or Guarantee
d
N
/A
‡
0.0014
N
/A
(4) Commercial Mo
r
t
g
a
g
es-All Othe
r
–
Cate
g
or
y
CM1
N
/A
‡
0.0090
N
/A
‡
(5) Commercial Mort
g
a
g
es
–
Cate
g
or
y
CM2
N
/A
‡
0.0175
N
/A
‡
(6) Commercial Mort
g
a
g
es
–
Cate
g
or
y
CM3
N
/A
‡
0.0300
N
/A
‡
(7) Commercial Mort
g
a
g
es
–
Cate
g
or
y
CM4
N
/A
‡
0.0500
N
/A
‡
(8) Commercial Mort
g
a
g
es
–
Cate
g
or
y
CM5
N
/A
‡
0.0750
N
/A
‡
(10) Farm Mort
g
a
g
es – Cate
g
or
y
CM1
N
/A
‡
0.0090
N
/A
‡
(11) Far
m
Mort
g
a
g
es
–
Cate
g
or
y
CM2
N
/A
‡
0.0175
N
/A
‡
(12) Farm Mort
g
a
g
es
–
Cate
g
or
y
CM3
N
/A
‡
0.0300
N
/A
‡
(13) Fa
r
m
Mort
g
a
g
es
–
Cate
g
or
y
CM4
N
/A
‡
0.0500
N
/A
‡
(14) Farm Mo
r
t
g
a
g
es
–
Cate
g
or
y
CM5
N
/A
‡
0.0750
N
/A
‡
90 Da
y
s Overdue, Not in P
r
ocess of Fo
r
eclosure
(16) Farm Mort
g
a
g
es
–
Cate
g
or
y
CM6 0.1800
‡
N
/A
‡
(17) Residential Mort
g
a
g
es-Insured or Guarantee
d
0.0027 0.0014 1.0
N
/A
(18) Residential Mort
g
a
g
es-All Othe
r
0.0140 0.0068 1.0
N
/A
(19) Commercial Mort
g
a
g
es-Insured or Gua
r
antee
d
0.0027 0.0014 1.0
N
/A
(20) Comme
r
cial Mort
g
a
g
es-All Othe
r
–
Cate
g
or
y
CM6 0.1800
‡
N
/A
‡
In Process of Foreclosure
(21) Farm Mort
g
a
g
es
–
Cate
g
or
y
CM7 0.2300
‡
N
/A
‡
(22) Residential Mor
t
g
a
g
es-Insured or Guarantee
d
0.0054 0.0014 1.0
N
/A
(23) Residential Mort
g
a
g
es-All Othe
r
0.0270 0.0068 1.0
N
/A
(24) Commercial Mort
g
a
g
es-Insured or Guarantee
d
0.0054 0.0014 1.0
N
/A
(25) Commercial Mort
g
a
g
es-All Othe
r
–
Cate
g
or
y
CM7 0.2300
‡
N
/A
‡
†
The category factor is a factor used for a particular category of mortgage loans that are not in good standing.
‡
The RBC Requirement for mortgage loans in good standing or restructured are not calculated on Figure (1). These requirements are calculated on Mortgage Worksheet (company
developed) (Figure 3) and transferred to LR004 Mortgage Loans Lines (4) through (8) and (10) through (14). In addition, for Commercial and Farm mortgage loans 90 days past
due or In Process of Foreclosure, the CM category is determined in Mortgage Worksheet (company developed) and transferred to Worksheet A.
© 2019-2020 National Association of Insurance Commissioners 5 109/254/201920
(Figure 3)
Mortgage Worksheet (company developed)
In Good Standing – Commercial Mortgages and Farm Mortgages
Price Index
current (year-end
calculations to be
based off of 3
rd
Quarter index of
the
g
iven
y
ear)
}
{input Price Index as of
September 30}
Name / ID
(1)
Date of Origination
(2)
Maturity Date
(3)
Property Type
(4)
Farm Loan Sub-
property type
(5)
Postal Code
(6)
Book /
Adjusted
Carrying Value
(7)
Statutory
Write-downs
(8)
Statutory
Involuntary
Reserve
(9)
Original Loan
Balance
(10)
Principal Loan
Balance to
Company
(11)
Balloon Payment at
Maturity
(12)
Principal Balance
Total
(13)
NOI Second Prior
Year
(14)
NOI Prior Year
(15)
NOI
(16)
Interest Rate
(17)
Trailing 12 Month
Debt Service
(18)
Original Property
Value
(19)
Property Value
(20)
Year of Valuation
(21)
Calendar Quarter of
Valuation
(22)
Credit
Enhancement?
(23)
Senior Debt?
(24)
Construction Loan?
(25)
Construction Loan
out of Balance?
(26)
Construction Loan
Issues?
(27)
Land Loan?
(28)
90 Days Past Due?
(29)
In Process of
Foreclosure?
(30)
Current payment
lower than based on
Loan Interest?
(31)
Is loan interest a
floating rate?
(32)
Is fixed rate reset
during term?
(33)
Is negative
amortization
allowed?
(34)
Amortization Type
(35)
Rolling
Average NOI
(36)
RBC Debt
Service
(37)
RBC DCR
(38)
Price Index at
Valuation
(39)
Contemporaneous
Property Value
(40)
RBC LTV
(41)
CM Category
(42)
© 2019-2020 National Association of Insurance Commissioners 6 109/254/201920
The Company should develop this worksheet on a loan-by-loan basis for each commercial mortgage – other or farm loan held in Annual Statement Schedule B. This worksheet
columns (7) and (9) subtotals for each category are to be carried over and entered in Columns (1) and (2) of Mortgages (LR004) in the risk-based capital formula lines (4) – (8) and
(10) – (14). Small mortgages aggregated into one line on Schedule B can be treated as one mortgage on this worksheet. Amounts in Columns (7), (9) and (42) are carried
individually to Worksheet A columns (2), (3) and (7a) for loans that are 90 Days Past Due and In Process of Foreclosure. NOTE: This worksheet will not be available in the risk-
based capital filing software and needs to be developed by the company.
Column Description / explanation of item
# Headin
g
Price Index current is the value on 9/30 of the current year for the National Council of Real Estate Investor Fiduciaries
Price Index for the United States.
(1)
N
ame / ID Inpu
t
Identif
y
each mort
g
a
g
e included as in
g
ood standin
g
.
(2) Date of Origination Input Enter the year and month that the loan was originated. If the loan has been restructured, extended, or otherwise re-
written, enter
t
hat new date.
(3) Maturit
y
Date Inpu
t
Enter earlier of maturit
y
of the loan, or the date the lender can call the loan.
(4) Property Type Input Enter 1 for mortgages with an Office, Industrial, Retail or multifamily property as collateral.
Enter 2 for mortgages with a Hotel and Specialty Commercial as property type. For properties that are multiple use, use
the property type with the greatest square footage in the property.
Enter 3 for Farm Loans.
(5) Farm Sub-type Input If Property Type=3 (Farm Loans), then you must enter a Sub Category: 1=Timber, 2=Farm and Ranch, 3=Agribusiness
Sin
g
le Purpose, 4=A
g
ribusiness All Other (See Note 8.)
(6) Postal Code Input Enter zip code of property for US. If multiple properties or zip codes, enter multiple codes. If foreign address, use postal
code. If not available, N/A.
(7) Book / Adjusted Carrying
Value
Input Enter the value that the loan is carried at on the company ledger.
(8) Statutor
y
W
r
ite-downs In
p
u
t
Enter the value of an
y
wri
t
e-
d
owns taken on this loan due to pe
r
manent impairment.
(9) Involuntary Reserve Input Enter the amount of any involuntary reserve amount. Involuntary reserves are reserves that are held as an offset to a
p
articular asset
t
hat is clearl
y
a troubled asse
t
an
d
are included on Pa
g
e 3 Line 25 of the Annual Statement.
(10) Ori
g
inal Loan Balance? Inpu
t
Ente
r
the loan balance at
t
he time of ori
g
ination of the loan.
(11) Principal Balance
t
o Co. Inpu
t
Enter the value of the loan
b
alance owed b
y
the borrower.
(12) Balloon Payment at
Maturit
y
Input Enter the amount of any balloon or principal payment due at maturity.
(13) Principal Balance Total Input Enter the total amount of mortgage outstanding including debt that is senior to or pari passu with the company’s mortgage
(Note 2)
(14)
N
OI Second Prio
r
Inpu
t
Enter the NOI from the
y
ear prior
t
o the value in (15). See Note 1.
(15)
N
OI Prio
r
Inpu
t
Enter the NOI from the prior
y
ear to the value in (16). See Note 1.
(16) NOI Input Enter the Net Operating Income for the most recent 12 month fiscal period with an end-date between July 1 of the year
prior to this report and June 30 of the year of this report. The NOI should be reported following the guidance of the
Commercial Real Estate Finance Council Investor Reporting Profile v.5.0. Section VII. See Notes 1, 3, 4, 5, and 6
b
elow.
© 2019-2020 National Association of Insurance Commissioners 7 109/254/201920
(17) Interest Rate Input Enter the annual interest rate at which the loan is accruing.
‐ If the rate is floating, enter the larger of the current month rate or the average rate of interest for the prior 12 months,
or
‐ If the rate is fixed by the contract, not level over the year, but level for the next 12 months, use current rate.
If the ‘Total Loan Balance’ consis
t
s of multiple loans, use an avera
g
e loan interest rate wei
g
hted b
y
p
r
inci
p
al balance.
(18) Trailing 12 Month Debt
Service
Input Enter actual 12 months debt service for prior 12 months
(19) Ori
g
inal Propert
y
Value Inpu
t
Enter the Propert
y
Value at
t
he
t
ime of ori
g
ination of the loan. (No
t
e 9)
(20) Property Value Input Property Value is the value of the Property at time of loan origination, or at time of revaluation due to impairment
underwritin
g
, restructure, extension, or other re-writin
g
. (No
t
e 9)
(21) Year of Valuation Input Year of the valuation date defining the value in (20). This will be either the date of origination, or time of restructure,
refinance, or other event which precipitates a new valuation.
(22) Quarter of Valuation Inpu
t
Calendar quar
t
er of the valuation date definin
g
the value in (20).
(23) C
r
edi
t
Enhancemen
t
Inpu
t
Ente
r
the full dollar amount of an
y
credit enhancement. (see
N
ote 5)
(24) Senior Debt? Inpu
t
En
t
er
y
es if senior position, no if not. (see Note 7.)
(25) Cons
t
r
uc
t
ion Loan? Inpu
t
Enter ‘Yes’ if this is a construction loan. (see Note 4.)
(26) Construction – not in
b
alance?
Input Enter ‘Yes” if his is a construction loan that is not in balance. (see Note 4)
(27) Construction
–
Issues? Inpu
t
Enter ‘Yes” if this is a construction loan with issues. (see Note 4)
(28) Land Loan? Inpu
t
Ente
r
‘Yes’ if this is a loan on non-income producin
g
land. (see No
t
e 6)
(29) 90 da
y
s past due? Inpu
t
Enter ‘Yes’ if
p
a
y
men
t
s are 90 da
y
s past due.
(30) In process of foreclosure? Inpu
t
Enter ‘Yes’ if the loan is in p
r
ocess of foreclosure.
(31) Is current payment lower
than a payment based on
the loan interest?
Input Yes / No
(32) Is loan interest a floating
rate?
Input Yes / No
(33) If not floating, does loan
reset during term?
Input Yes / No - Some fixed rate loans define in the loan document a change to a new rate during the life of the loan, which
may be a pre-determined rate or may be the then current market rate. Generally any such changes are less frequent than
annual.
(34) Is negative amortization
allowed?
Input Yes / No
(35) Amortization type? Input 1 = fully amortizing
2 = amortizing with balloon
3 = full I/O
4 = partial I/O, then amortizin
g
(36) Rolling Average NOI Computation For 2013 – 100% of NOI
For 2014 – 65% NOI + 35% NOI Prior
For 2015 – 50% NOI + 30% NOI Prior + 20% NOI 2
nd
Prior
For loans originated or valued within the current year, use 100% NOI.
For loans ori
g
inated 2013 or later and within 2
y
ears, use 65% NOI and 35% NOI Prio
r
© 2019-2020 National Association of Insurance Commissioners 8 109/254/201920
(37) RBC Debt Service Computation This amount is the amount of 12 monthly principal and interest payments required to amortize the Total Loan Balance
(13) usin
g
a S
t
andardized A
m
ortization period of 300 months and the Annual Loan Interest Rate (17).
(38) RBC DCR Computation This is the ratio of the Net Operating Income (36) divided by the RBC Debt Service (37) rounded down to 2 decimal
p
laces. See Note 3 below for special circumstances.
(39) NCREIF Price Index at
Valuation
Computation The value of the NCREIF Price Index on the last day of the calendar quarter that includes the date defined in (21) and
(22).
(40) Contemporaneous
Prope
r
t
y
Value
Computation The Property Value (20) times the ratio (rounded to 4 decimal places) of the Price Index current to the Price Index at
valuation (39).
(41) RBC LTV Compu
t
ation The Total Loan Value (13) divided
b
y
the Contemporaneous Value (40) rounded to the nearest percent.
(42) CM Category Computation The risk category determined by applying the DCR (38) and the LTV (41) to the criteria in Figure (4), Figure (5) or
Fi
g
ure (6). See Notes 2, 3, 4, 5, and 6
b
elow for special circumstances.
Note 1: Net Operating Income (NOI): The majority of commercial mortgage loans require the borrower to provide the lender with at least annual financial statements. The NOI
would be determined at the RBC calculation date based on the most recent annual period from financial statements provided by the borrower and analyzed based on accepted
industry standards. The most recent annual period is determined as follows:
If the borrower reports on a calendar year basis, the statements for the calendar year ending December 31 of the year prior to the RBC calculation date will be used. For
example, if the RBC calculation date is 12/31/2012, the most recent annual period is the calendar year that ends 12/31/2011.
If the borrower reports on a fiscal year basis, the statements for the fiscal year that ends after June 30 of the prior calendar year and no later than June 30 of the year of the
RBC calculation date will be used. For example, if the RBC calculation date is 12/31/2012, the most recent annual period is the fiscal year that ends after 6/30/2011 and no
later than 6/30/2012.
The foregoing time periods are used to provide sufficient time for the borrower to prepare the financial statements and provide them to the lender, and for the lender to
calculate the NOI.
The accepted industry standards for determining NOI were developed by the Commercial Mortgage Standards Association now known as CRE Financial Council (CREFC). The
company must develop the NOI using the standards provided by the CREFC Methodology for Analyzing and Reporting Property Income Statements v.5.1. (www.crefc.org/irp).
These standards are part of the CREFC Investor Reporting Package (CREFC IRP Section VII.) developed to support consistent reporting for commercial real estate loans owned
by third party investors. This guidance would be a standardized basis for determining NOI for RBC.
The NOI will be adjusted to use a 3 year rolling average for the DSC calculation. For 2013, a single year of NOI will be used. For 2014, 2 years will be used, weighted 65% most
recent year and 35% prior year. Thereafter, 3 years will be used weighted 50% most recent year, 30% prior year, and 20% 2
nd
prior year. This will apply when there is a history
of NOI values. For new originations, including refinancing, the above schedule would apply by duration from origination. For the special circumstances listed below, the specific
instructions below will produce the NOI to be used, without further averaging.
For purposes of the NOI inputs at (14), (15), (16), and the computation of a Rolling Average NOI at (36), an insurer may report 2020 NOI (i.e., NOI for any 12-month fiscal
period ending after June 30, 2020 but not later than June 30, 2021) as the greater of: (1) actual NOI as determined under the CREF-C IRP Standards or (2) 85% of NOI
determined for the immediate preceding fiscal year’s annual report. This guidance with respect to 2020 NOI applies to the application of the 2020 NOI in risk-based capital
reporting for 2021, 2022, and 2023. In cases where an insurer reports 85% of 2019 NOI as the 2020 NOI input, the insurer should retain information about actual 2020 NOI in its
workpapers so that the information can be readily available to regulators.
© 2019-2020 National Association of Insurance Commissioners 9 109/254/201920
SCHEDULE BA MORTGAGES
LR009
Basis of Factors
For Affiliated Mortgages, Line 10999999, the factors used are the same as for commercial mortgages and are defined in Figure 9. Risk categories and factors are determined using a
company generated worksheet for In Good Standing (Figure 10) and (Figure 8) for Past Due or In Process of Foreclosure.
For Unaffiliated Mortgages, Line 0999999, the factors used are the same as for commercial mortgages and are defined in Figure 9. Risk categories and factors are determined as
follows:
1) For Investments that contain covenants whereby factors of maximum LTV and minimum DSC, or equivalent thresholds must be complied with and it can be
determined that the Investments are in compliance, these investments would use the process for directly held mortgages using the maximum LTV and minimum DSC
using the company generated worksheet and transferred to LR009 line (2) for mortgages with covenants that are in compliance.
2) Investments that are defeased with government securities will be assigned to CM1.
3) Other investments comprised primarily of senior debt will be assigned to CM2.
4) All other investments in this category will be assigned CM3. This would include assets such as a mortgage fund that invests in mezzanine or sub debt, or investments
that cannot be determined to be in compliance with the covenants.
Specific Instructions for Application of the Formula
Column (1)
Except for Line (1), calculations are done on an individual mortgage basis and then the summary amounts are entered in this column for each class of mortgage investment. Refer to
the Schedule BA mortgage calculation worksheets (Figure 8) and (Figure 10) for how the individual mortgage calculations are completed. Line (20) should equal Schedule BA Part 1,
Column 12, Line 0999999 plus Line 1099999.
Column (2)
Companies are permitted to reduce the book/adjusted carrying value of mortgage loans reported in Schedule BA by any involuntary reserves. Involuntary reserves are equivalent to
valuation allowances specified in the codification of statutory accounting principles. They are non-AVR reserves reported on Annual Statement Page 3, Line 25. These reserves are
held as an offset for a particular troubled Schedule BA mortgage loan that would be required to be written down if the impairment was permanent.
Column (3)
Column (3) is calculated as the net of Column (1) less Column (2).
Column (4)
For Lines (12) through (14) and Lines (16) through (18), summary amounts of the individual mortgage calculations are entered in this column for each class of mortgage investments.
Refer to the Schedule BA mortgage calculation worksheet (Figure 8).
Column (5)
For Line (1), the pre-tax factor is 0.0014.
See Figure 9 for computation of appropriate factors.
© 2019-2020 National Association of Insurance Commissioners 10 109/254/201920
Column (6)
For Lines (1) through (10) the RBC subtotal is multiplied by the average factor to calculate Column (6). The categories and subtotals will be determined in the company developed
worksheet Figure (10).
For Lines (12) through (14) and Lines (16) through (18), summary amounts are entered for Column (6) based on calculations done on an individual mortgage basis. Refer to the
Schedule BA mortgage calculation worksheet (Figure 8).
(Figure 8)
Schedule BA Mortgage Worksheet A
Other Than In Good Standing
(1) (2) (3) (4) (5) (6) (7) (7a) (8) (9) (10)
Name / ID
Book/Adjusted
Carrying
Value
Involuntary
Reserve
Adjustment§
RBC
Subtotal £
Cumulative
Writedowns
*
Category
Factor
In Good
Standing
Factor
In Good
Standing
Category
Col (6) X
[Col
(4)+(5)]
- Col (5)
Col (4) X
Col (7)
RBC
Requirement
‡
90 Days Overdue – Insured or
Guarantee
d
† †
†
(1) All Mortgages
Without
Cumulative
Writedowns
XXX 0.0027 0.0014 N/A
(2) With Cumulative
Writedowns:
0.0027 0.0014 N/A
(3) 0.0027 0.0014
N
/A
Total
90 Da
y
s Over
d
ue
–
Unaffiliate
d
(1) All Mortgages
Without
Cumulative
Writedowns
XXX 0.1800 † †
(2) With Cumulative
Writedowns:
0.1800 † †
(3) 0.1800 † †
Total
90 Da
y
s Ove
r
due
–
Affiliated
(1) All Mortgages
Without
Cumulative
Writedowns
XXX 0.1800 † †
(2) With Cumulative
Writedowns:
0.1800 † †
© 2019-2020 National Association of Insurance Commissioners 11 109/254/201920
(3) 0.1800 † †
Total
In Process of Foreclosure – Insured
or Guarantee
d
(1) All Mortgages
Without
Cumulative
Wri
t
edowns
XXX 0.0054 0.0014 N/A
(2) With Cumulative
Writedowns:
0.0054 0.0014 N/A
(3) 0.0054 0.0014
N
/A
Total
In Process of Foreclosure –
Unaffiliate
d
(1) All Mortgages
Without
Cumulative
Wri
t
e
d
owns
XXX 0.2300 † †
(2) With Cumulative
Writedowns:
0.2300 † †
(3) 0.2300 † †
Total
In Process of Foreclosure
–
Affiliate
d
(1) All Mortgages
Without
Cumulative
Writedowns
XXX 0.2300 † †
(2) With Cumulative
Writedowns:
0.2300 † †
(3) 0.2300 † †
To
t
al
(99) Total Schedule BA
Mortgages
This worksheet is prepared on a loan-by-loan basis for each of the mortgage categories listed in (Figure 9) that are applicable. The Column (2), (3), (5) and (10) subtotals for each
category are carried over and entered in Columns (1), (2), (4) and (6) of the Schedule BA Mortgages (LR009) Lines (12) through (14) and Lines (16) through (18) in the risk-based
capital formula. NOTE: This worksheet will be available in the risk-based capital filing software.
†
See (Figure 9) for factors to use in the calculation. The In Good Standing Factor will be based on the CM category developed in the company generated worksheet (Figure 10) and
reported in Column 7a.
‡ The RBC Requirement column (10) is calculated as the greater of Column (8) or Column (9), but not less than zero.
© 2019-2020 National Association of Insurance Commissioners 12 109/254/201920
§ Involuntary reserves are reserves held as an offset to a particular asset that is clearly a troubled asset and are included on Page 3, Line 25 of the annual statement.
£ Column (4) is calculated as Column (2) less Column (3).
* Cumulative writedowns include the total amount of writedowns, amounts non-admitted and involuntary reserves that have been taken or established with respect to a particular
mortgage.
(Figure 9)
The mortgage factors are used in conjunction with the mortgage worksheets (Figures 8 and 10) to calculate the RBC Requirement for each individual mortgage in an affiliated
structure. The factors are used in Columns (6) and (7) of the mortgage worksheet (Figure 8) and are dependent on which of the 14 mortgage categories below the mortgage falls into.
Residential Mortgages and Commercial Mortgages Insured or Guaranteed are classified as Category CM1. The following factors are used for each category of mortgages:
Schedule BA Mort
g
a
g
e Factors
LR009
Line
Number
Category
Factor†
In Good
Standing
Factor
(3) Unaffiliated
–
defeased with
g
overnment securities
N
/A
‡
0.0090
(4) Unaffiliated investments comprised primarily of
Senior Deb
t
N/A‡ 0.0175
(5) Unaffiliated
–
all other unaffiliated mort
g
a
g
es
N
/A
‡
0.0300
(6) Affiliated Mort
g
a
g
es
–
Cate
g
or
y
CM1
N
/A
‡
0.0090
(7) Affiliated Mo
r
t
g
a
g
es
–
Cate
g
or
y
CM2
N
/A
‡
0.0175
(8) Affiliated Mort
g
a
g
es
–
Ca
t
e
g
o
r
y
CM3
N
/A
‡
0.0300
(9) Affiliated Mort
g
a
g
es
–
Cate
g
or
y
CM4
N
/A
‡
0.0500
(10) Affiliated Mort
g
a
g
es
–
Cate
g
or
y
CM5
N
/A
‡
0.0750
(12) 90 Da
y
s Past Due - Insured or Guaranteed 0.0027 .0014
(13) 90 Da
y
s Past Due - Unaffiliated 0.1800
‡
(14) 90 Da
y
s Past Due
–
Affiliate
d
0.1800
‡
(16) In P
r
ocess of Foreclosure - Insured o
r
Guaranteed 0.0054 .0014
(17) In Process of Foreclosure - Unaffiliated 0.2300
‡
(18) In Process of Foreclosure
–
Affiliate
d
0.2300
‡
† The category factor is a factor used for a particular category of mortgage loans that are not in good standing.
‡ The RBC Requirement for mortgage loans in good standing are not calculated on Figure (8). These requirements are calculated on the company’s Schedule BA Mortgage Worksheet
and transferred to LR009 Schedule BA Mortgage Loans Lines (12) – (14) and (16) – (18).
© 2019-2020 National Association of Insurance Commissioners 13 109/254/201920
(Figure 10)
Mortgage Worksheet (company developed)
In Good Standing - Commercial
Price Index
current (year-end
calculations to be
based off of 3
rd
Quarter index of
the
g
iven
y
ear)
}
{input Price Index as of
September 30}
Name / ID
(1)
Date of Origination
(2)
Maturity Date
(3)
Property Type
(4)
Farm Loan Sub-
property Type
(5)
Postal Code
(6)
Book/Adjusted
Carrying Value
(7)
Statutory
Write-downs
(8)
Statutory
Involuntary
Reserve
(9)
Original Loan
Balance
(10)
Principal Loan
Balance to
Company
(11)
Balloon Payment at
Maturity
(12)
Principal Balance
Total
(13)
NOI Second Prior
Year
(14)
NOI Prior Year
(15)
NOI
(16)
Interest Rate
(17)
Trailing 12 Month
Debt Service
(18)
Original Property
Value
(19)
Property Value
(20)
Year of Valuation
(21)
Calendar Quarter of
Valuation
(22)
Credit
Enhancement?
(23)
Senior Debt
(24)
Construction Loan
(25)
Construction Loan
out of Balance
(26)
Construction Loan
Issues
(27)
Land Loan
(28)
90 Days Past Due
(29)
In Process of
Foreclosure?
(30)
Current payment
lower than based on
Loan Interest?
(31)
Is loan interest
floating?
(32)
Is fixed rate reset
during term?
(33)
Is negative
amortization
allowed?
(34)
Amortization Type
(35)
Schedule BA
mortgage?
(36)
Affiliated Mortgage
(37)
Covenant – Max
LTV
(39)
Covenant – Min
DCR
(40)
Loan Covenants in
compliance?
(41)
Defeased with
government
securities?
(42)
© 2019-2020 National Association of Insurance Commissioners 14 109/254/201920
Primarily Senior
positions?
(43)
Rolling Average
NOI
(44)
RBC DCR
(45)
Price Index at
Valuation
(46)
Contemporaneous
Property Value
(47)
RBC - Loan to
Value Ratio
(48)
RBC Risk Category
(49)
This worksheet is prepared on a loan-by-loan basis for each commercial mortgage – other or farm loan held in Schedule BA. The Column (7) and (9) subtotals for each category
are carried over and entered in Columns (1) and (2) of the Mortgages (LR009) in the risk-based capital formula lines (2) – (10). Small mortgages aggregated into one line on
Schedule BA can be treated as one mortgage on this worksheet. Amounts in Columns (7), (9) and (49) are carried individually to Worksheet A columns (2), (3) and (7a) for loans
that are 90 Days Past Due and In Process of Foreclosure. NOTE: This worksheet will not be available in the risk-based capital filing software and must be developed by the
Company.
Column Description / Explanation of Item
# Headin
g
Price Index current is the value on 9/30 of the current year for the National Council of Real Estate Investor Fiduciaries
Price Index for the United States.
(1)
N
ame / ID Inpu
t
Identif
y
each mort
g
a
g
e included as in
g
ood standin
g
.
(2) Date of Origination Input Enter the year and month that the loan was originated. If the loan has been restructured, extended, or otherwise re-
writ
t
en, enter that new date.
(3) Maturi
t
y
Date Inpu
t
Enter earlier of maturit
y
of the loan, or the date the lender can call the loan.
(4) Property Type Input Enter 1 for mortgages with an Office, Industrial, Retail or multifamily property as collateral.
Enter 2 for mortgages with a Hotel and Specialty Commercial as property type. For properties that are multiple use, use
the property type with the greatest square footage in the property.
Enter 3 fo
r
Fa
r
m Loans.
(5) Farm Sub-type Input Sub-category – If Property Type=3 (Farm Loans), then you must enter a Sub Category: 1=Timber, 2=Farm and Ranch,
3=A
g
ribusiness Sin
g
le Purpose, 4=A
g
ribusiness All Othe
r
. (See Note 8)
(6) Postal Code Input Enter zip code of property for US properties. If multiple properties or zip codes, enter multiple codes. If foreign, enter
p
ostal code. If not available, N/A.
(7) Book / Adjusted Carrying
Value
Input Enter the value that the loan is carried at on the company ledger.
(8) Statutor
y
Writedowns Inpu
t
Enter
t
he value of an
y
writedowns taken on this loan due
t
o permanent i
m
p
airment.
(9) Involuntary Reserve Input Enter the amount of any involuntary reserve amount. Involuntary reserves are reserves that are held as an offset to a
p
articular asset that is clea
r
l
y
a troubled asset and are included on Pa
g
e 3 Line 25 of the Annual Statement.
(10) Ori
g
inal Loan Balance? Inpu
t
Enter the loan balance at the time of ori
g
ination of the loan.
(11) Principal Balance to Co. Inpu
t
Enter the value of the loan balance owed
by
the borrowe
r
.
(12) Balloon Payment at
Maturi
t
y
Input Enter the amount of any balloon or principal payment due at maturity.
(13) Principal Balance Total Inpu
t
Enter the total amount of mort
g
a
g
e outs
t
andin
g
t
ha
t
is senior to or pari passu with the com
p
an
y
’s mort
g
a
g
e
(14)
N
OI Second Prio
r
Inpu
t
Enter the NOI from
t
he
y
ear prior to the value in (15). See Note 1.
(15)
N
OI P
r
io
r
Inpu
t
Enter the NOI from the
p
rior
y
ea
r
to the value in (16). See Note 1.
© 2019-2020 National Association of Insurance Commissioners 15 109/254/201920
(16) NOI Input Enter the Net Operating Income for the most recent 12 month fiscal period with an end-date between July 1 of the year
prior to this report and June 30 of the year of this report. The NOI should be reported following the guidance of the
Commercial Real Estate Finance Council Investor Reporting Profile v.5.0. Section VII. See Notes 1, 2, 3, 4, 5 and 6
b
elow.
(17) Interest Rate Input Enter the annual interest rate at which the loan is accruing.
‐ If the rate is floating, enter the larger of the current month rate or the average rate of interest for the prior 12 months,
or
‐ If the rate is fixed by the contract, not level over the year, but level for the next 12 months, use current rate.
If the ‘Total Loan Balance’ consists of multi
p
le loans, use an avera
g
e loan interest rate wei
g
hted b
y
princi
p
al balance.
(18) Trailing 12 Month Debt
Service
Input Enter actual 12 months debt service for prior 12 months.
(19) Ori
g
inal Propert
y
Value Inpu
t
Enter the loan balance at the time of ori
g
ination of the loan.
(20) Property Value Input The value of the Property at time of loan origination, or at time of revaluation due to impairment underwriting,
restructure, extension, or other re-writin
g
.
(21) Year of Valuation Input Year of the valuation date defining the value in (20). This will be either the date of origination, or time of restructure,
r
efinance, or other event which precipitates a new valuation.
(22) Quarter of Valuation Inpu
t
Calendar quarter of
t
he valuation date definin
g
the value in (20).
(23) C
r
edi
t
Enhancemen
t
Inpu
t
Enter the full dollar amount of an
y
credit enhancemen
t
. (see Note 5)
(24) Senior Loan? Inpu
t
Enter ’Yes’ if senior position, ‘No’ if not. (see
N
ote 7)
(25) Construction Loan? Inpu
t
Enter ‘Yes’ if this is a construction loan. (see
N
o
t
e 4)
(26) Construction – not in
b
alance
Input Enter ‘Yes’ if this is a construction loan that is not in balance. (see Note 4)
(27) Construction
–
Issues Inpu
t
En
t
er ‘Yes’ if this is a construction loan wi
t
h issues. (see Note 4)
(28) Land Loan? In
p
u
t
Enter ‘Yes’ if this is a loan on non-income producin
g
land. (see
N
ote 6)
(29) 90 da
y
s past due? Inpu
t
Enter ‘Yes’ if pa
y
ments are 90 da
y
s past due.
(30) In process of foreclosure? Inpu
t
Enter ‘Yes’ if the loan is in process of foreclosure.
(31) Is current payment lower
than a payment based on
the Loan In
t
erest?
Input Yes / No
(32) Is loan interest a floating
rate?
Input Yes / No
(33) If not floating, does loan
reset during term?
Input Yes / No - Some fixed rate loans define in the loan document a change to a new rate during the life of the loan, which
may be a predetermined rate or may be the then current market rate. Generally any such changes are less frequent than
annual.
(34) Is negative amortization
allowed?
Input Yes / No
(35) Amortization type? Input 1 = fully amortizing
2 = amortizing with balloon
3 = full I/O
4 = pa
r
tial I/O, then amortizin
g
(36) Schedule BA mort
g
a
g
e? Inpu
t
Yes /
N
o
(37) Affiliated Mort
g
a
g
e? Inpu
t
Yes /
N
o
© 2019-2020 National Association of Insurance Commissioners 16 109/254/201920
(38) Covenan
t
Max LTV Inpu
t
For mort
g
a
g
e investmen
t
s with covenants, what is the maximum LTV allowed?
(39) Covenan
t
Min DCR In
p
u
t
Fo
r
mort
g
a
g
e investments with covenants, what is the minimum DCR allowed?
(40) Covenants in compliance? Inpu
t
Yes /
N
o
–
for mort
g
a
g
e investments with covenants, is the inves
t
men
t
in co
m
p
liance with the covenants?
(41) Defeased with
g
ove
r
nment securities
Input Yes / No – has the mortgage loan been defeased using government securities?
(42) Primarily Senior
Mort
g
a
g
es
Input Is the mortgage pool primarily senior mortgage instruments? {If yes, assign to CM2}
(43) Rolling Average NOI Computation For 2012 – 100% of NOI
For 2014 – 65% NOI + 35% NOI Prior
For 2015 – 50% NOI + 30% NOI Prior + 20% NOI 2
nd
Prior
For loans originated or valued within the current year, use 100% NOI.
Fo
r
loans o
r
i
g
inated 2012 or later and within 2
y
ea
r
s, use 65% NOI and 35% NOI Prio
r
.
(44) RBC Debt Service Computation RBC Debt Service Amount is the amount of 12 monthly principal and interest payments required to amortize the Total
Loan Balance (13) using a Standardized Amortization period of 300 months and the Annual Loan Interest Rate (17).
(45) RBC - DCR Computation Debt Coverage Ratio is the ratio of the Net Operating Income (43) divided by the RBC Debt Service (44) rounded down
to 2 decimal places. See Note 3 below for special circumstances. For loan pools with covenants, this will be the minimum
DCR b
y
covenant.
(46) NCREIF Index at
Valuation
Computation Price index is the value of the NCREIF Price Index on the last day of the calendar quarter that includes the date defined in
(21) and (22).
(47) Contemporaneous
Proper
t
y
Value
Computation Contemporaneous Value is the Property Value (11) times the ratio (rounded to 4 decimal places) of the Price Index
current to the Price Index (46).
(48) RBC - LTV Computation The Loan to Value ratio is the Loan Value (13) divided by the Contemporaneous Value (47) rounded to the nearest
percent.
For Loan Pools with covenants, this will be the max LTV b
y
covenant.
(49) CM Category Computation Commercial Mortgage Risk category is the risk category determined by applying the DCR (45) and the LTV (48) to the
criteria in Figure (11), Figure (12) or Figure (13). See Notes 2, 3, 4, 5, and 6 below for special circumstances.
If (41) =
y
es, CM1. If (42) =
y
es, CM2. If no LTV and DCR, and (41) = no and (42) = no, CM3.
Note 1: Net Operating Income (NOI): The majority of commercial mortgage loans require the borrower to provide the lender with at least annual financial statements. The NOI
would be determined at the RBC calculation date based on the most recent annual period from financial statements provided by the borrower and analyzed based on accepted industry
standards. The most recent annual period is determined as follows:
If the borrower reports on a calendar year basis, the statements for the calendar year ending December 31 of the year prior to the RBC calculation date will be used. For
example, if the RBC calculation date is 12/31/2012, the most recent annual period is the calendar year that ends 12/31/2011.
If the borrower reports on a fiscal year basis, the statements for the fiscal year that ends after June 30 of the prior calendar year and no later than June 30 of the year of the
RBC calculation date will be used. For example, if the RBC calculation date is 12/31/2012, the most recent annual period is the fiscal year that ends after 6/30/2011 and no
later than 6/30/2012.
The foregoing time periods are used to provide sufficient time for the borrower to prepare the financial statements and provide them to the lender, and for the lender to
calculate the NOI.
The accepted industry standards for determining NOI were developed by the Commercial Mortgage Standards Association now known as CRE Financial Council (CREFC). The
company must develop the NOI using the standards provided by the CREFC Methodology for Analyzing and Reporting Property Income Statements v. 5.1 (www.crefc.org/irp).
© 2019-2020 National Association of Insurance Commissioners 17 109/254/201920
These standards are part of the CREFC Investor Reporting Package (CREFC IRP Section VII.) developed to support consistent reporting for commercial real estate loans owned by
third party investors. This guidance is a standardized basis for determining NOI for RBC.
The NOI will be adjusted to use a 3-year rolling average for the DSC calculation. For 2013, a single year of NOI will be used. For 2014, 2 years will be used, weighted 65% most
recent year and 35% prior year. Thereafter, 3 years will be used weighted 50% most recent year, 30% prior year, and 20% 2
nd
prior year. This will apply when there is a history of
NOI values. For new originations, including refinancing, the above schedule would apply by duration from origination. For the special circumstances listed below, the specific
instructions below will produce the NOI to be used, without further averaging.
For purposes of the NOI inputs at (14), (15), (16), and the computation of a Rolling Average NOI at (43), an insurer may report 2020 NOI (i.e., NOI for any 12-month fiscal period
ending after June 30, 2020 but not later than June 30, 2021) as the greater of: (1) actual NOI as determined under the CREF-C IRP Standards or (2) 85% of NOI determined for the
immediate preceding fiscal year’s annual report. This guidance with respect to 2020 NOI applies to the application of the 2020 NOI in risk-based capital reporting for 2021, 2022, and
2023. In cases where an insurer reports 85% of 2019 NOI as the 2020 NOI input, the insurer should retain information about actual 2020 NOI in its workpapers so that the information
can be readily available to regulators.
