"The Impact of Collateral on Securities Valuation for Statutory Accounting Purposes"

D

The correct answer is D. Securities lending.

Securities lending refers to the practice of temporarily transferring securities from one party (the lender) to another party (the borrower), typically in exchange for collateral. This practice is common in various financial markets, including the insurance industry.

The National Association of Insurance Commissioners (NAIC) is an organization composed of insurance regulators from all 50 U.S. states, the District of Columbia, and several U.S. territories. The NAIC sets standards and regulations for insurance companies operating in the United States, including guidelines for statutory accounting.

For statutory accounting purposes, which involves the financial reporting and regulatory requirements for insurance companies, the NAIC has stated that securities lending has no effect on the valuation of securities. This means that insurance companies engaging in securities lending activities do not need to adjust the value of the securities on their balance sheets, as long as the amount of collateral received from the borrower is at least equal to the required collateral.

In other words, as long as the insurance company receives sufficient collateral to cover the value of the lent securities, the lending transaction does not impact the accounting valuation of those securities. This ensures that the insurance company's financial statements accurately reflect the value of its securities holdings, even when they are temporarily lent out.

It's important to note that the NAIC's statement applies specifically to statutory accounting purposes within the insurance industry. It does not necessarily apply to other accounting frameworks or regulatory contexts outside of the insurance sector.

Therefore, the correct answer to the question is D. Securities lending.