NAIC’s New Risk-Based Capital Task Force: Fund Finance Implications

The National Association of Insurance Commissioners (NAIC) has formed the Risk-Based Capital Model Governance Task Force to reassess and modernize capital requirements for insurance companies.¹ This initiative is particularly relevant to fund finance, where insurers play a crucial role as both lenders and in their capacity as investors in private funds. Changes to risk-based capital (RBC) treatment could materially affect how insurance companies allocate capital to subscription credit facilities and NAV loans on one side of the fund finance market and rated note feeders on the other.

Potential Impact on Insurers’ Activities

Lending

The task force’s agenda suggests that insurers’ lending activities in fund finance could be subject to more refined capital requirements. The principle of “Equal Capital for Equal Risk” may lead to more differentiated treatment across fund finance structures. While subscription credit facilities have historically been recognized for their strong performance, a more nuanced framework could further validate their low-risk profile and support continued insurance company participation. NAV lending, where insurers provide leverage against fund assets, is another area that could see adjustments in capital treatment. How the task force approaches NAV loans remains to be seen. While a more detailed analysis could result in additional capital requirements, it could also lead to a more tailored framework that better reflects the actual risk profile of these loans. The outcome will depend on how the task force classifies NAV exposure relative to other forms of lending.

Investing

For insurance companies in their capacity as investors, the task force’s work is particularly relevant to rated note feeder structures, which have become an increasingly popular vehicle for insurers seeking exposure to private equity and other alternative assets. The task force’s emphasis on “new sources of yield” suggests that rated note structures could be a focal point in the broader re-evaluation of RBC treatment. A recalibration of capital charges could affect the attractiveness of these structures and prompt insurers to reassess their approach to private fund investments.

The task force is expected to develop guiding principles on incorporating evolving risks into the RBC model, establishing data requirements for capital factor calculations, and defining statistical safety targets. It will also conduct a comprehensive gap analysis to identify areas where existing capital requirements may not adequately reflect risk exposure. This process will likely influence capital factor calibration for various fund finance exposures, potentially leading to adjustments in insurers’ cost of capital when participating in these markets.

Takeaways for Market Participants

The implications of this initiative are broad. Lenders relying on insurance company participation in fund finance should prepare for potential changes in insurers’ approach to underwriting and pricing. Subscription credit facility lenders may find that RBC refinements reinforce the low-risk profile of their loans, supporting continued insurance company investment. NAV lenders, however, face an open question. A more sophisticated treatment of NAV lending could result in a capital framework that recognizes the nuances of these facilities, but it could also introduce new regulatory considerations. Market participants should watch closely as the task force clarifies its approach. Fund sponsors, particularly those utilizing rated note feeder structures, should also monitor developments, as changes in capital treatment could impact the economics of these investment vehicles.

The fund finance industry should remain engaged as the task force’s work progresses. The NAIC’s focus on insurers’ involvement in alternative assets and structured products signals a broader regulatory shift that could reshape how insurance companies participate in fund finance markets. Given the task force’s mandate and its placement under the NAIC Executive Committee, the fund finance industry should expect substantive developments with potential long-term implications. Close monitoring, proactive engagement, and early assessment of potential regulatory impacts will be critical as the framework evolves.

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We will continue to track the task force’s progress and provide updates as the regulatory landscape takes shape.

¹ Judith French & Nathan Houdek, Risk-Based Capital (RBC) Model Governance (EX) Task Force, NAIC Memorandum (Feb. 9, 2025).