The 2025 Spring Meeting of the National Association of Insurance Commissioners (NAIC) in Indianapolis, Indiana featured a wide-ranging slate of topics, from investment subsidiaries to risk-based capital (RBC) use. We share some of the key takeaways from our time at the multi-day event.
Seeking Visibility Around Asset-Intensive Reinsurance Deals
The Life Actuarial Task Force (LATF) continued discussions on the Asset Adequacy Testing for Reinsurance Actuarial Guideline draft. The goal is to gain sufficient visibility into the reserves and solvency of US life insurers entering asset-intensive reinsurance transactions that allow the total asset requirement to decrease significantly. The plan is to adopt this guidance in August, with the first reports due by April 1, 2026, at least initially for disclosure only. Insurers may choose—or be required by its regulator—to post higher reserves based on the findings.
While the New York 7 (NY7) interest-rate scenarios won’t be required formally, a similar analysis would be. This shouldn’t pose much of a burden because most life insurers with asset-intensive businesses already conduct NY7. The session also featured debate on mandatory cash-flow testing run with starting assets equal to the post-reinsurance reserve, as well as optional alternative runs (higher starting assets, if justified). The updated draft will be exposed until April 24, 2025.
The Latest on Structured Security and Bond Fund Workstreams
The Risk-Based Capital Investment Risk and Evaluation Working Group meeting featured updates on structured security and bond fund workstreams.
- The American Academy of Actuaries reported on the progress of its structured securities risk-based capital (RBC) project. The acquisition of CUSIP-level collateralized loan obligation data from Moody’s is complete, with work continuing on underlying loan collateral modeling, CLO dynamics and C-1 methodology. We don’t expect the project to wrap up soon enough to affect year-end 2025 CLO modeling. At the same time, the Structured Securities Group (SSG) is advancing on its approach. Both groups reiterated their commitment to cooperation, but the Academy isn’t close to the finish line, so either CLO modeling would have to be delayed until 2026 or based entirely on the SSG approach.
- The ACLI-led bond fund workstream intends to align RBC treatment for three vehicles holding fixed-income investments: ETFs, mutual funds and private funds. It proposes using the weighted average risk factor methodology for all three—though reporting and accounting treatments differ. Comments were supportive and noted that this unification should extend to non-life RBC: 96% of mutual funds and 45% of all funds with SVO designations reside on non-life balance sheets. Also, smaller insurers use funds more often than large insurers, so this would level the playing field for them. The NAIC will focus on life first, then P&C and health. There’s no formal proposal yet and other workstreams are higher priority, so adoption won’t come in 2025.
More Clarity on C-3 Convergence Concept
During the Life Risk-Based Capital Working Group session, the Academy presented on C-3 convergence—a concept first raised in 2023—with more details and a specific timeline. C-3 Phase 1 applies to single premium life and non-indexed fixed annuities; C-3 Phase 2 applies to variable annuities and will become a basis for the unified C-3 approach once it has been ironed out. Finalized methodology and a field test are in scope for 2025, followed in 2026 by proposals, discussions and adoption by year end. The project relies on the new Generator of Economic Scenarios, which could be adopted within the same time frame.
Wide-Ranging Agenda for Statutory Accounting Principles
The Statutory Accounting Principles Working Group meeting resulted in significant adoptions and discussions:
- Collateral loan reporting will become more granular. The working group adopted the collateral loan reporting proposal requiring six-line-item reporting for Schedule BA and AVR based on collateral type, more granular than thecurrent single line and blended RBC factor. Corresponding changes also need to go through for the blanks. Effective date is January 1, 2026.
- Removal of investment subsidiary language postponed. We touched on this potentially far-reaching topic in our Fall 2024 report. There’s currently no such statutory concept in SSAP No. 97—Investments in Subsidiary, Controlled and Affiliated Entities; it was removed in 2005 but still exists elsewhere, such as in Schedule D-6-1, so it impacts reporting, accounting, and capital treatment. The NAIC was recently leaning toward eliminating all references to investment subsidiaries, but insurers do use them to get look-through RBC treatment, especially for residential mortgage loans held in Delaware Statutory Trusts (DSTs).
Commenters stressed that subsidiaries provide operating efficiency and cost effectiveness, and that residential mortgage allocations are rising due to higher rates. Finally, the use of investment subsidiaries supposedly comes from state investment laws that in turn were based on NAIC model law, so removing subsidiaries may contradict state laws. The working group postponed action for further study, focusing specifically on DSTs; the industry must come forward if it wants more structures reviewed.
- Slow progress on creation of conforming repo category. The goal is to create a conforming repo category and align its accounting, reporting and RBC treatment with the existing conforming securities lending concept. The NAIC may eventually separate securities lending and repo guidance from SSAP No.103, creating a separate SSAP, but progress has been slow on this lesser-priority item.
- The ALM derivatives workstream is still in its early stages. The working group is taking a data-driven approach to a complex, multi-faceted topic. Key issues to sort out include: the effectiveness definition; accounting specifics; the interest maintenance reserve (IMR) and gain or loss recognition and/or amortization; the admissibility of and limits on net deferred losses; and disclosure, reporting, and governance issues. The NAIC will need industry help to develop guidance. Expect a long road ahead.
- Work continues on a long-term IMR solution. The temporary solution to allow net-negative IMR admittance up to 10% of reserves automatically expires on January 1, 2026, unless it’s extended. As part of the continuing work on a long-term solution, the ACLI proposed a new definition of IMR as a valuation adjustment that ensures consistency between assets and liabilities; the IMR defers and amortizes non-economic gains/losses and does not apply to economic ones. The proposal’s goal is to better reflect solvency by shielding the statutory surplus from interest-rate volatility. The ACLI’s definition also specifically mentions fixed-income derivative hedging transactions.
The NAIC pushed back against several of these points, such as referencing derivative hedging transactions, economic versus non-economic delineation, and the entire paragraph on IMR supporting solvency and protecting statutory surplus. The two versions of the definition are exposed for comments, as time runs out to forge a permanent IMR solution before the temporary one expires—we expect an extension on the temporary solution.
- Referral on asset-concentration factor for non-bond debt securities with SVO designations on Schedule BA. The ACLI proposes to treat these securities as bonds for asset-concentration purposes. An alternative would be to assign them a 15% asset concentration factor consistent with “Other Schedule BA Assets.” The motion to receive a referral from the Life Risk-Based Capital Working Group has been adopted. This topic wasn’t discussed at the meeting; comments are due April 11. Expect activity to pick up in earnest in the summer.
Sharp Differences in Views on RBC Use
The most attention-getting agenda item at the Capital Adequacy Task Force meeting was Proposal 2024-16-CA (Revised Preamble), which intends to clarify purposes, intent, and scope for RBC use. It reiterates that RBC is solely a regulatory tool to identify companies that could be weakly capitalized, so any ranking or comparison of insurers on an RBC basis is neither useful nor appropriate. The draft goes much further, completely prohibiting any public dissemination or discussion of any insurer’s RBC levels—or even RBC components. This means insurers must stop publishing their actual and target RBC ratios in their annual statements, making them effectively confidential. Section E (“Limited use of Risk-Based Capital”) hammers those points home even further. Industry comment letters uniformly objected to making RBC non-public, proposing to soften the language and delay adoption of the revised preamble. The proposal has been re-exposed for 45 days; expect heated discussions and vigorous resistance from the industry.
Valuation of Securities Task Force: Private Letter Ratings and CLO Modeling
- Discussions on documents focused on Private Letter Ratings (PLR). The task force deliberated on two proposed amendments to the P&P Manual and a couple of NAIC reports, all focused on PLR. Since January 1, 2024, rationale reports must be filed with the SVO for any privately rated security. The first amendment would require filing within 90 days of a rating affirmation, update, or change to avoid the SVO marking the security as ineligible for filing exemption until it receives the filing. The second amendment would require reports to have the same level of analytical substance as for a similar public security and enough detail for an independent party to form a reasonable opinion about its risks. Both amendments are exposed for comments until April 25.
Both NAIC staff reports highlight the rapidly growing number and importance of PLR securities. The first report details the status of PLR rationale report filings in 2024 and early 2025. NAIC systems are now able to identify privately rated securities missing rationale reports. There were 1,636 such securities as of November 11, 2024, falling to 494 by February 27, 2025, and to 346 in early March, when the NAIC removed them from FE eligibility.
The other NAIC report disclosed carry-over filings for 2024. The SVO reviewed almost 20,000 filings last year a 25% increase from 16,000 in 2023. PLR filings jumped to 8,229 in 2024 from 3,879 in 2023, a 112% increase. Excluding PLR securities, the carry-over rate has been growing, staying above 10% for the last two years. The SVO needs more resources and better technology to address the ever-increasing volume.
- CLO modeling methodology update. The NAIC Structured Securities Group provided a brief update on its CLO modeling progress. The group recently posted new results to its CLO web page, incorporating the three-bucket reinvestment methodology. Once again, the SSG pledged cooperation with the Academy, which is working on the structured securities RBC project in parallel.
In Other Spring Meeting News
The new Risk-Based Capital Model Governance Task Force held its first in-person meeting. The task force published its inaugural memo in February, outlining its goals and a proposed list of charges. Now, the members must roll their sleeves up to develop guiding principles and work on gap analysis, planning to enlist the help of a consultant.
The Financial Condition Committee heard reports from subordinated working groups and task forces, which we’ve presented here. As for the E-Committee’s own insurance investment framework initiative, the CRP due diligence RFP has been adopted. A consultant should be hired soon, and work will start under the direction of the Valuation of Securities Task Force.
We’ll continue to follow developments on these and other regulatory issues closely over time as the NAIC advances its various initiatives and workstream remits.
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