US NAIC Summer 2024 National Meeting Highlights: Capital Adequacy (E) Task Force

The US National Association of Insurance Commissioners (“NAIC”) held its Summer National Meeting in Chicago from August 12-15, 2024. During the Summer National Meeting, the Capital Adequacy (E) Task Force (“CAD TF”) met on August 14. The meeting covered the following notable matters.

• The CAD TF heard and adopted Working Group project reports from the Health Risk-Based Capital (E) Working Group, the Risk-Based Capital Investment Risk and Evaluation (E) Working Group (a summary of which can be found at our recent Legal Update), the Life Risk-Based Capital (E) Working Group (“Life RBC WG”), the Property and Casualty Risk-Based Capital (E) Working Group, and the Catastrophe Risk (E) Working Group.
• The CAD TF adopted its 2024 Working Agenda, which included the following new items, among others:
• A request from the Statutory Accounting Principles (E) Working Group (“SAP WG”) to consider eliminating any admitted net negative interest maintenance reserve (“IMR”) from an insurer’s Total Adjusted Capital calculation for risk-based capital (“RBC”) purposes and undertake sensitivity testing with and without negative IMR.   
• Developing a structure proposal to reflect the bifurcation of Schedule D, Part 1 of the Annual Statement into separate sections for issuer credit obligations and asset-backed securities, which are the two subcategories of bonds under the SAP WG’s principles-based bond definition that will become effective on January 1, 2025.
• The CAD TF also exposed the following matters for comment:
• Procedures In Connection with Proposed Amendments to RBC Blanks and Instructions, exposed for a 30-day comment period ending September 13, which includes a modification that any proposals affecting an RBC blank must be exposed by the CAD TF or its working groups no later than March 31 in the effective year of the change, and must be adopted by the CAD TF no later than May 15 in the effective year of the change.
• The CAD TF’s 2025 Proposed Charges, which include modifications consistent with the Procedures In Connection with Proposed Amendments to RBC Blanks and Instructions, for a 30-day comment period ending September 13.
• A request to the Financial Condition (E) Committee to establish a new working group called the Risk-Based Capital Risk Research (E) Working Group, to review non-investment related factors that affect the RBC formula and perform a comprehensive review of the RBC framework for all categories of insurers. In its proposal, the CAD TF expresses the view that a regularly scheduled analysis of RBC charges is necessary to maintain the accuracy of the RBC formula and remain current with economic conditions. Possible tasks for the new working group identified by the CAD TF include (i) identifying and acknowledging uses of RBC that extend beyond the purpose of the RBC Model Act; (ii) assessing the impact and effectiveness of changes contributing to the identification of weakly capitalized companies; and (iii) documenting the modifications made over time to the RBC formulas.

To view additional updates from the US NAIC Summer 2024 National Meeting, visit our meeting highlights page.