New NAIC Risk-Based Capital Task Force Launches; Financial Stability Task Force Reviews Key Priorities

Two important meetings were held on March 17, 2025 by task forces of the National Association of Insurance Commissioners (“NAIC”):

• the newly launched Risk-Based Capital Model Governance (EX) Task Force (“RBCMG TF”); and
• the Financial Stability (E) Task Force (“FS TF”).

Risk-Based Capital Model Governance (EX) Task Force

The RBCMG TF held its inaugural meeting via teleconference in advance of the upcoming Spring National Meeting of the NAIC. The meeting materials are available online.

The fact that the RBCMG TF has been established by the NAIC Executive (EX) Committee signalizes the priority that is being given to the risk-based capital (“RBC”) system at the highest levels of the NAIC. Also significant is the fact that state insurance commissioners (and not just their staff) are participating directly in the work of the task force—so much so that the RBCMG TF is already being referred to informally as “the commissioner-led RBC task force.”

The RBCMG TF has two co-chairs: Ohio Director of Insurance Judith French (who also chairs the NAIC Life Insurance and Annuities (A) Committee) and Wisconsin Commissioner of Insurance Nathan Houdek (who also chairs the NAIC Financial Condition (E) Committee).

The purpose of the March 17 meeting was to adopt the 2025 proposed charges for the RBCMG TF. The charges, which were adopted as proposed, are as follows:

1. Develop a set of guiding principles for the RBC framework to ensure a consistent approach to future RBC adjustments. These principles will serve as a strategic foundation to ensure that all revisions to the RBC framework are enhancements that uphold its integrity, adaptability, and global competitiveness and further the principle of “Equal Capital for Equal Risk.”
2. Complete a comprehensive gap analysis and consistency assessment to identify and inventory gaps that exist, and establish a plan for addressing identified gaps and potential inconsistencies that improve the framework.
3. Oversee the development of an education and public messaging campaign to highlight the benefits and strengths of the RBC framework as an important part of the US state-based insurance regulatory system.
4. Facilitate and oversee coordination and alignment among all NAIC committees/task forces/etc. related to this initiative and implementation of the guiding principles, including the Life Actuarial Task Force (“LATF”), the Capital Adequacy Task Force (“CATF”), the Accounting Practices and Procedures Task Force (“APPTF”), and the Valuation of Securities Task Force (“VOSTF”). The work of this Task Force will not result in the work of other RBC-related committees/task forces/etc. being paused or stopped.
5. Create a process for analyzing both retrospective and future adjustments to RBC, incorporating regular reviews of RBC outcomes and ensuring future adjustments are made in alignment with guiding principles. This process will facilitate ongoing improvements to ensure the framework remains responsive to emerging risks and market trends, enabling the RBC framework to adapt proactively.

Before adopting the 2025 charges, Co-Chair French gave representatives of the interested parties that had submitted comment letters an opportunity to address the task force and summarize their comments. The comment letters (which are available in the meeting materials) as well as the oral comments were broadly supportive of the initiative.

Following the vote to adopt the 2025 charges, Co-Chair Houdek reviewed the agenda for the upcoming meeting of the RBCMG TF on March 25 in connection with the NAIC Spring National Meeting, which will provide an opportunity for a more in-depth discussion of the 2025 charges and the comment letters. The March 25 meeting materials include one additional comment letter that was not in the March 17 materials, as well as supplemental materials from the American Academy of Actuaries.

Financial Stability (E) Task Force

The FS TF met via teleconference on March 17, in lieu of meeting at the Spring National Meeting of the NAIC. Two themes dominated the discussion: (i) the increased use of cross-border asset intensive reinsurance; and (ii) increased investment allocations by insurers toward “alternative assets.” The following is a summary of the discussion at the meeting.

• Elizabeth Kelleher Dwyer, Director of the Rhode Island Department of Business Regulation and NAIC representative to the Financial Stability Oversight Council (“FSOC”), drew attention to the following recommendations relating to the insurance sector from the FSOC’s annual report:

“The Council recommends that FIO, the NAIC, and state insurance authorities work with member agencies to further evaluate the potential impact of the identified structural changes within the insurance industry on systemic risk and associated financial stability considerations.

“The Council encourages the NAIC and state insurance authorities to continue enhancing supervisory, credit analysis, risk management, and capital and liquidity testing frameworks in consideration of liquidity stress, counterparty risk, credit risk, and ratings migration that could arise in a period of economic stress or market dislocations, or from the failure of one or more offshore reinsurers. Additionally, the Council encourages state insurance authorities and the NAIC to consider concentrations of risk and counterparty exposure to affiliated offshore entities.

“The Council supports continued work by the NAIC and state insurance authorities to address the supervisory implications of the growing use of offshore reinsurance, including asset adequacy testing to assess asset-intensive reinsurance and reduce potential incentives for regulatory arbitrage. The Council encourages state insurance authorities and the NAIC to work toward greater disclosure of private market investments and offshore reinsurance in statutory financial reporting, and to consider whether enhancements in supervisory tools and processes related to ratings assessment of, and risk-based capital charges for, such assets should be required. Finally, the Council encourages the NAIC, state insurance authorities, and FIO to continue monitoring the growth of private credit in the life insurance sector.”

• Robert Kasinow, Assistant Deputy Superintendent of the New York State Department of Financial Services and Chair of the NAIC Macroprudential (E) Working Group (“MWG”) (which reports to the FS TF), reported on two regulator-only meetings of the MWG that had been held in February. He described an educational program that is being developed for state regulators on cross-border reinsurance, including the accounting, statutory reporting and RBC treatment of such transactions. He said that the MWG workplan also includes reviewing the use of sidecars in the life insurance sector, the creation of a reinsurance dashboard, retrocessions and reinsurance recapture provisions. With regard to recapture, he noted that the Bank of England Prudential Regulation Authority (“PRA”) had published a supervisory statement on funded reinsurance in 2024 that requires insurers to demonstrate with a high level of confidence that they can withstand either a single recapture event, or multiple recapture events involving highly correlated counterparties. He clarified, however, that the inclusion of recapture in the MWG’s workplan should not be interpreted to mean that the MWG is seeking to have a similar process implemented in the US.
• Fred Andersen, Chief Life Actuary at the Minnesota Department of Commerce, gave a slide presentation on Actuarial Guideline 53 (“AG 53”) and reinsurance asset adequacy analysis. He explained that AG 53 was adopted in 2022 to help ensure life insurers’ claims-paying ability even if complex assets do not perform as expected. He said that the filings required by AG 53 provide an opportunity for life insurers to tell their stories regarding their complex assets and associated risks and how their cash-flow testing models address those risks (see slide deck for further detail). Mr. Andersen then reported on the initiative of the NAIC Life Actuarial (A) Task Force (“LATF”) relating to asset adequacy testing. He said that a new actuarial guideline is being developed for year-end 2025, designed to provide US state regulators the information they need to review the adequacy of reserves held by offshore reinsurers when those reserves are lower than what would be required under US statutory standards. He noted that although the LATF had decided at the NAIC’s Fall 2024 National Meeting that the actuarial guideline would be “disclosure only,” it would serve the following purposes: (i) insurers will be able to view their own results and decide whether to post additional reserves; (ii) domestic state regulators will continue to have the right to require additional reserves; and (iii) after reviewing the first year of disclosures, if significant concerns are noted, then LATF will be able to reopen public discussions to consider appropriate next steps.
• Tim Nauheimer, Manager of Macroprudential Surveillance at the NAIC Capital Markets Bureau, provided an update on activities of the International Association of Insurance Supervisors (“IAIS”). He referred to the IAIS’s Global Monitoring Exercise“ ("GME”) and the December 2024 Global Insurance Market Report (GIMAR) resulting from the GME. He pointed out that the GIMAR focuses on two macroprudential themes: key risks in the current macroeconomic environment and structural shifts in the life insurance sector, particularly asset allocation to alternative investments and cross-border asset-intensive reinsurance. The GIMAR includes the following description of these two themes:
  • “There has been increased focus on structural shifts in the life insurance sector, covering both: (1) increased investment allocations by insurers towards so-called “alternative assets” such as private credit, private equity and securitisations, and (2) the increased use of crossborder asset-intensive reinsurance. Some insurers are increasing their allocations to alternative assets to seek higher yields and diversification. Key supervisory concerns include discretionary valuation, liquidity risks, hidden leverage and credit risks.
  • “Asset-intensive reinsurance is set for significant growth, driven by factors such as higher net spreads, pension reforms and demographic changes, with reinsurance providing risk management and capital optimisation tools. Key supervisory concerns include understanding the rationale for these transactions, managing concentration risks at the jurisdictional and reinsurer level, the increasing complexity of these types of agreements and potential conflicts of interest.”

The NAIC Spring National Meeting will be held in Indianapolis from March 23 to 26, and we expect to provide additional updates on investment-related themes from the national meeting sessions.