The process for determining an other-than-temporary impairment is inherently judgmental, involving the weighing of positive and negative factors and evidence that may be objective or subjective. As noted in ARM 5010.45, the initial consideration in determining whether an investor in securities should record an other-than-temporary impairment loss is to determine whether the investment is impaired.

An investment is considered impaired if the fair value of the investment is less than its amortized cost. In accordance with ASC 320-10-35-20, the determination of whether an investment is impaired should be made at the individual security level in each reporting period (except as noted below for certain cost-method investments). ASC 320 describes the "individual security level" as the level of aggregation used by the reporting entity to measure realized and unrealized gains and losses on its debt and equity securities. For example, equity securities of an issuer bearing the same CUSIP number that were purchased in separate trade lots may be aggregated by a reporting entity on an average cost basis if that corresponds to the basis used to measure realized and unrealized gains and losses for securities of the issuer. If, instead of the average cost basis, a company uses the specific identification method upon sale, it would need to perform the impairment analysis using the specific identification method for each individual security, rather than aggregating securities with the same CUSIP number.

ASC 320 also discusses that an investor should not combine separate contracts, such as a debt security and separate guarantee or other credit enhancement, when performing the impairment analysis. We believe that a guarantee (or other credit enhancement) should be considered when determining whether an investment is impaired if it provides for payment in a manner that would allow the guarantee to qualify for a scope exception under ASC 815-10-15-13 (c) or (d) and is contractually included in the terms of the purchased debt security. The determination of whether a guarantee is contractually included in the terms of the purchased debt security depends on the specific facts and circumstances. For example, a guarantee of principal and interest payments by a third party guarantor may be contractually included in the terms of a purchased debt security to create a single legal instrument (e.g., a guaranteed security). In this example, the guaranteed security itself is the unit of account, rather than the individual bond and guarantee components. However, if a guarantee is a distinct legal contract and is not contractually a component of the purchased debt security, it must be accounted for separately and cannot be considered in the impairment analysis of the security. Note that accounting for the guarantee separately from the security, pursuant to the guidance in ASC 320, may result in the recognition of impairment losses on the security and income statement recognition of the guarantee in different periods.