US NAIC Spring 2025 National Meeting Highlights: Investment-Related Highlights

The NAIC Spring National Meeting was held in Indianapolis from March 23-26, 2025. This update reports on some highlights of the Spring National Meeting sessions relating to insurance company investments.

Risk-Based Capital Investment Risk and Evaluation (E) Working Group

The NAIC Risk-Based Capital Investment Risk and Evaluation (E) Working Group (the “RBC IRE WG”) met on March 24. The RBC IRE WG agenda included the following noteworthy topics, among others:

A. The American Academy of Actuaries provided an update on the risk-based capital (RBC) project for structured securities

The RBC IRE WG is charged with performing a comprehensive review of the C-1 (investment risk) component of the NAIC’s RBC framework. Since 2022, the RBC IRE WG, with the assistance of the American Academy of Actuaries (the “Academy”), has been engaged in developing an RBC framework for asset-backed securities, beginning with CLOs.

At the March 24 RBC IRE WG meeting, Stephen Smith, Chair of the Academy’s C-1 Subcommittee, provided an update on the project. His slide presentation is included as Attachment C to the meeting materials. As at past meetings, Mr. Smith explained that the Academy’s goal is to identify and assess candidates for “comparable attributes” that can be used to differentiate risk and to analyze whether a small set of identifiable attributes explains most of the tail risk of CLOs, such that those attributes could be used to determine C-1 (asset risk) RBC factors.

Mr. Smith reported that the Academy had acquired the comprehensive CLO database compiled by Moody’s and was in the process of obtaining a model that the American Council of Life Insurers (“ACLI”) had developed, with help from Moody’s, in order to model credit losses on the collateral pools of bank loans that underlie CLOs—using the same methodology that was used to develop C-1 RBC factors for corporate bonds, while also taking into account the senior secured status of a holder of CLO notes. The next step is to model how credit losses in the collateral pools of bank loans flow through to each tranche in the CLO waterfall, using Moody’s CDOnet software, which the NAIC Structured Securities Group (“SSG”) will run on the Academy’s behalf. The modeled cash flows will then need to be converted into losses that can be analyzed to identify whether there are comparable attributes that can be used to determine C-1 capital charges.

In the discussion at the conclusion of the report, Mr. Smith and members of the RBC IRE WG acknowledged that the project would require significant further time and effort and is expected to continue past 2025.

B. The RBC IRE WG discussed comments on the ACLI’s recommendations regarding RBC principles for bond funds

At the February 11 RBC IRE WG meeting, the RBC IRE WG had exposed for comment recommendations from the ACLI (included in the February 11 meeting materials) for improving the consistency of the RBC treatment of funds that invest in bond portfolios.

By way of background, bond funds with similar economic risks are currently treated in different ways by the NAIC:

1. Bond ETFs (SEC-registered) can be filed with the NAIC’s Securities Valuation Office (“SVO”) to determine if they are eligible for inclusion on the SVO-Identified Bond ETF List, in which case they will be accounted for under SSAP No. 26—Bonds, reported as bonds on Schedule D, Part 1, and receive a bond RBC factor based on the NAIC designation assigned by the SVO (using a WARF methodology with reference to the underlying assets).
2. Bond Mutual Funds (SEC-registered) can be filed with the SVO to determine if they are eligible for inclusion on the NAIC Fixed Income Like SEC Registered Funds List, in which case they will be accounted for under SSAP No. 30—Unaffiliated Common Stock, reported as common stock on Schedule D, Part 2, Section 2, and receive a 30% RBC factor (for life insurers), even though they are assigned an NAIC designation.
3. Private Bond Funds (not SEC-registered) can be filed with the SVO to determine if they are eligible for inclusion on the NAIC List of Schedule BA Non-Registered Private Funds With Underlying Assets Having Characteristics of Bonds or Preferred Stock, in which case they will be accounted for under SSAP No. 48—Joint Ventures, Partnerships and Limited Liability Companies, reported on Schedule BA, and receive a bond RBC factor based on the designation assigned by the SVO (using a WARF methodology with reference to the underlying assets). 

The ACLI’s proposal, which the RBC IRE WG had exposed for comment until March 7, set out “candidate principles” to ensure consistent RBC treatment among various fund types where the underlying holdings are bonds and currently meet the criteria for the SVO WARF methodology. The effect of adopting these principles would be to accord Bond Mutual Funds the same RBC treatment that is currently accorded to Bond ETFs and Private Bond Funds, namely, a bond RBC factor based on the designation assigned by the SVO (using a WARF methodology with reference to the underlying assets). The concept is that the RBC treatment should reflect the fact that these three different legal forms do not affect the economic risk.

The March 24 RBC IRE WG meeting discussed three comment letters (included as Attachments D, E and F to the meeting materials), all of which were supportive of the ACLI proposal. It was pointed out that funds make it easier for smaller insurers, especially property/casualty (“P/C”) and health insurers, to invest in certain asset classes. On that basis, commenters not only supported the adoption of the ACLI proposal for life insurers, but also suggested that fund investments of P/C and health insurers should similarly receive bond RBC factors based on NAIC designations assigned by the SVO, rather than automatically receiving a 20% RBC factor as is currently the case. Several members of the RBC IRE WG also expressed support for this view.

RBC IRE WG Chair Philip Barlow pointed out that the ACLI proposal is still in the concept stage and needs to be developed into formal RBC amendments before it can be acted upon. He suggested that this should be done first for life insurers, and then for P/C and health insurers. It was noted that any such RBC amendments would likely be effective only in 2026, not in 2025.

C. Statutory reporting of residual tranches will be reviewed

Chair Barlow stated that NAIC staff has extracted detailed data from annual statements regarding how insurers are actually reporting residual interests. He said that the RBC IRE WG would be holding another meeting to discuss that data, and that it would be a regulator-only meeting because it will include discussion of specific company data.

Statutory Accounting Principles (E) Working Group

The NAIC Statutory Accounting Principles (E) Working Group (“SAPWG”) met on March 24, 2025. The SAPWG agenda included the following noteworthy topics, among others:

A. Collateral loan reporting will become more granular

The SAPWG adopted agenda Item 2023-28, which will expand the Schedule BA and Asset Valuation Reserve (“AVR”) reporting lines for collateral loans, effective January 1, 2026, to subdivide the reporting of collateral loans into the following subcategories, based on which of the following types of collateral is securing the loan:

1. Mortgage loans (including mezzanine loans)
2. Investments in joint ventures, partnerships or limited liability companies
3. Residual tranches or interests
4. Debt securities
5. Real estate
6. Other collateral types

In addition, the following electronic-only columns will be added to Schedule BA for collateral loans:

1. Fair value of collateral backing the collateral loan
2. Percentage of such fair value to the collateral loan

The specific changes to the annual and quarterly statement blanks have been exposed by the Blanks (E) Working Group for a comment period ending April 29, 2025.

Importantly, the SAPWG staff noted that the breaking out of collateral loans into separate categories on Schedule BA and the AVR is an essential step to facilitate the eventual assignment of different RBC factors to collateral loans based on the nature of the underlying collateral—in contrast to the current system in which all collateral loans receive a single RBC factor of 6.8% for life insurers and 5% for P/C and health insurers.

B. The prior proposal to require new Schedule S and Schedule F reporting for Modco and funds withheld assets has been pared back

About a year ago, in March 2024, the SAPWG exposed a new project (Item 2024‑07) to add a new part to the reinsurance Schedule S in the life/fraternal and health annual statement blanks and the reinsurance Schedule F in the P/C and title annual statement blanks. The new part would have required reporting, on an asset-by-asset basis, of investments held by ceding insurers under modified coinsurance (“Modco”) agreements or funds withheld (“FWH”) arrangements.

During an extended comment period following the NAIC Summer 2024 National Meeting, interested parties raised significant objections to the proposal. They suggested that adding a new part to Schedule F in the P/C annual statement would have limited usefulness because non-life insurers do not engage in Modco transactions, and the use of FWH arrangements in the P/C context has decreased in recent years due to the recognition of certified reinsurers and reciprocal jurisdiction reinsurers. They also expressed concerns that the composition of Modco and FWH accounts is proprietary information that reflects reinsurance pricing strategies, and therefore asset-level disclosure would potentially cause competitive harm.

Based on the comments from interested parties, the SAPWG pared back its original proposal at the March 24 meeting, eliminating the proposal to add a new part to Schedule F of the P/C and title annual statement blank and Schedule S of the health annual statement blank. Instead the SAPWG exposed for comment an updated draft of a new Part 8 of Schedule S for only the life/fraternal blank, and eliminated the previously proposed asset-level disclosure from that draft. The updated draft of Schedule S more closely aligns with the AVR schedule in the annual statement, as it includes only summarized data by asset class and rating category. As such, it will be able to flow through the AVR to the RBC calculation. The comment period for this revised proposal ends on May 2, 2025.

C. Disclosures relating to Modco and funds withheld assets will be added to the notes to the statutory financial statements

The SAPWG adopted agenda Item 2024-20, effective on December 31, 2025, to clarify that assets held under Modco agreements or FWH arrangements are in scope of paragraph 23.c. of SSAP No. 1—Accounting Policies, Risks & Uncertainties, and Other Disclosures and must be disclosed on a summary basis in Note 5L of the statutory financial statements. Note 5L will also need to disclose the extent to which any of the assets held as collateral or as Modco or FWH assets have been pledged for another purpose specific to the ceding insurer, for example, as collateral under a securities lending agreement or a repo transaction or pledged as collateral for FHLB advances. The SAPWG also sent a referral to the Life RBC (E) Working Group, asking it to clarify that when assets held as Modco or FWH assets have been pledged for such other purpose, then the RBC will not be reduced for that asset as would ordinarily be the case for Modco or FWH assets, since the ceding insurer (rather than the reinsurer) will be exposed to the asset risk or variability.

D. The focus of the project to reexamine the statutory accounting treatment of investment subsidiaries has shifted to the use of Delaware statutory trusts (DSTs) to hold residential mortgage loans

The SAPWG continued its discussion of ways to clarify statutory accounting guidance for investment subsidiaries of insurance companies, which are currently reported on Schedule D-6-1 of the statutory investment schedules. The term “investment subsidiary” is defined in the Schedule D instructions as “any subsidiary, other than a holding company subsidiary, engaged or organized to engage primarily in the ownership and management of investments authorized as investments for the reporting entity.” A similar description is found in Section 2TT of the NAIC Investments of Insurers Model Act (Model 280) (“a subsidiary of an insurer engaged or organized to engage exclusively in the ownership and management of assets authorized as investments for the insurer”). In addition, Section 2B(2) of the NAIC Insurance Holding Company System Regulatory Act (Model 440) refers to “subsidiaries engaged or organized to engage exclusively in the ownership and management of assets authorized as investments for the insurer” and provides for looking through such subsidiaries to the underlying investments held by them when determining compliance with any quantitative investment limitations applicable to the insurer. As discussed in our Legal Update reporting on the US NAIC 2024 Fall National Meeting, there are several disconnects in the current statutory accounting guidance and reporting practices for investment subsidiaries that result from the removal of the investment subsidiary concept from SSAP guidance in 2005 when SSAP No. 46 was superseded by SSAP No. 88, which was subsequently superseded by the current SSAP No. 97—Investments in Subsidiary, Controlled and Affiliated Entities.

At the NAIC Fall National Meeting, NAIC staff had explained that this issue came to their attention because of an uptick in the Schedule D-6-1 reporting of investment subsidiaries in recent years, as well as concerns regarding non-uniform reporting practices across insurers with respect to investment subsidiaries and a lack of transparency regarding the underlying assets held through investment subsidiaries when the RBC is calculated on a “look-through” basis. Among the concepts exposed for comment at the Fall National Meeting were revising SSAP No. 97 to incorporate statutory accounting guidance of investment subsidiaries and adding new investment schedules to report in detail the underlying assets held through investment subsidiaries.
Comments from interested parties on the exposed proposal were supportive of adding guidance on investment subsidiaries to SSAP No. 97, but opposed to the concept of requiring the itemization of each individual asset held within an investment subsidiary. The comments also urged that a unified approach be taken to investment subsidiaries regardless of the legal form of the entity (corporation, limited liability company, partnership or trust). In particular, the comment letter went into some detail regarding the prevalent use of Delaware statutory trusts to hold residential mortgage loans.

At the March 24 SAPWG meeting, NAIC staff stated that they had concluded from interested parties’ comments that the key industry focus is on developing statutory accounting and reporting guidance for Delaware statutory trusts holding residential mortgage loans, and accordingly that they would shift their focus to address that topic first. NAIC staff also stated that if there are other specific structures captured as investment subsidiaries on Schedule D-6-1 that warrant separate review, industry can present those dynamics to the staff for further assessment, but otherwise they expected that they would ultimately be recommending removal of the concept of a generic “investment subsidiary” from statutory reporting and RBC calculations.

In our view, prioritizing the development of accounting and reporting guidance for residential mortgage loans held in DSTs is welcome and timely. Once that is accomplished, however, we do not think the concept of “investment subsidiary” is ready to be jettisoned from statutory reporting and RBC calculations, because it is rooted in state investment and holding company laws, which in many cases are based on NAIC model laws. We think that NAIC staff and the SAPWG will need to take those state insurance laws into account as they consider how to clarify statutory accounting and reporting and RBC treatment of investment subsidiaries.

E. A proposal was exposed for comment to require additional disclosures regarding Modco and FWH investments that are related to or affiliated with the reinsurer

This agenda Item 2025‑05 was included in response to a January 7, 2025 referral from the NAIC Financial Analysis (E) Working Group (“FAWG”), which generally meets in closed “regulator-only” sessions because it discusses issues affecting specific insurance companies. The FAWG referral to the SAPWG is worth quoting from directly:

In recent years, there has been an increase in the number and significance of coinsurance with funds withheld and modified coinsurance reinsurance arrangements ceding blocks of life and annuity liabilities to offshore, third-party reinsurers that are unauthorized. These arrangements, and other similar structures, often involve the transfer of investment advisory responsibilities for the assets supporting the business to the reinsurer or one of its affiliates, although the assets remain on the books of the ceding insurer to collateralize the transaction and/or support of the liabilities.

In a recent troubled company situation, the third-party investment advisor/reinsurer reallocated a significant portion of the assets into securities that were later discovered to be affiliated with and/or related to the investment advisor/reinsurer. However, this concentration was not readily apparent to the domestic regulator, as the securities were issued by various legal entities and the related party relationships were not identifiable in the ceding insurer’s Supplemental Investment Risk Interrogatories. After the discovery of this concentration through an examination, the domestic regulators also identified significant concerns regarding the valuation of the securities.

The accurate and complete reporting of potential investment concentrations, particularly of affiliated or related parties of an appointed investment advisor/reinsurer, is of critical importance to regulators in ongoing solvency monitoring. As coinsurance with funds withheld and modified coinsurance arrangements where investment advisory services are transferred to the reinsurer are becoming increasingly common and more complex, there is the potential for investment concentrations in assets affiliated with or related to the reinsurer to go unidentified through the existing statutory reporting framework. As such, FAWG recommends that the Statutory Accounting Principles (E) Working Group (SAPWG) consider whether enhanced reporting or disclosures could be developed in this area to identify such concentrations.

The SAPWG’s response to the FAWG referral was to expose agenda Item 2025‑05 for a comment period ending on May 2, 2025. This proposal would revise paragraph 23 of SSAP No. 1—Accounting Policies, Risks & Uncertainties, and Other Disclosures to require restricted asset disclosures in insurers’ quarterly statements in addition to the annual statements. The proposal would also sponsor blanks revisions to expand the disclosures in Note 5L of the statutory financial statements to identify whether Modco or FWH assets are “related to” the reinsurer (using the six codes developed for use in Schedule D to identify asset-backed securities that have related party characteristics). To timely meet the needs of state insurance regulators, NAIC staff expressed a goal to have this agenda item and the corresponding blanks revisions adopted with an effective date of December 31, 2025, although time will tell whether that timing will be achieved.

F. The limited-time exception guidance regarding negative interest maintenance reserve (IMR) is due to expire on December 31, 2025 unless extended

On August 13, 2023, the SAPWG adopted a statutory interpretation, INT 23-01: Net Negative (Disallowed) Interest Maintenance Reserve, which prescribes limited-time, optional, statutory accounting guidance as an exception to the guidance in SSAP No. 7—Asset Valuation Reserve and Interest Maintenance Reserve and the annual statement instructions that requires nonadmittance of net negative (disallowed) IMR. INT 23-01 expressly states that it is a short-term solution until December 31, 2025 and will be automatically nullified on January 1, 2026.

At the March 24 SAPWG meeting, NAIC staff reported on the activities of the IMR Ad Hoc Group, which include discussions focusing on IMR from reinsurance transactions, reinvestment for sold fixed-income instruments where realized gains/losses are taken to IMR, and guidance on excess withdrawals. Noting that a long-term solution for the net negative (disallowed) IMR issue had not yet been developed, SAPWG Chair Dale Bruggeman commented that the SAPWG would need to decide whether to extend the effectiveness of the INT 23‑01 short-term solution beyond December 31, 2025 or let it lapse on December 31.

Capital Adequacy (E) Task Force

The NAIC Capital Adequacy (E) Task Force (“CADTF”) met on March 25. CADTF’s agenda consisted primarily of receiving and adopting reports from its various subgroups.

However, one agenda item that received particular attention was Proposal 2024-16-CA, a revised Preamble to the RBC instructions that was originally exposed for comment at the NAIC’s Spring 2024 National Meeting. The basic thrust of the proposed Preamble revisions is to limit the use of RBC ratios to the narrow purpose of enabling state insurance regulators to identify potentially weakly capitalized companies that may require enhanced oversight or intervention and to discourage the dissemination of RBC ratios for any other purpose. This goal is proposed to be accomplished through the addition of a new Section E and additional line edits in other sections of the Preamble. The Preamble already prohibits the public disclosure of RBC ratios—except as otherwise required under the provisions of the Risk-Based Capital (RBC) for Insurers Model Act (Model 312) or the Risk-Based Capital (RBC) for Health Organizations Model Act (Model 315). The proposed revisions would strengthen such prohibitions on public disclosures and would, among other things, state that it is inappropriate to use RBC ratios to compare well-capitalized insurers with each other.

At the March 25 CADTF meeting, there was a discussion of comment letters on the proposed Preamble revisions submitted by the Transamerica Companies, the American Academy of Actuaries and the ACLI (all included as Attachment 11 to the meeting materials). The comment letters were generally critical of the proposed revisions and emphasized the benefits of fostering transparency regarding insurers’ RBC levels. Among other things, a concern was expressed that adoption of the proposed Preamble revisions would lead to the removal of the existing disclosures of an insurer’s Total Adjusted Capital and Authorized Control Level RBC from the Five-Year Historical Data page of the annual statutory statement—a disclosure that is permitted by the RBC model acts referenced above—but it is not clear that this would be the case, since the Preamble language allowing for exceptions permitted by the RBC model acts is not proposed to be changed. In addition to a discussion of the written comments, there were also oral comments from the Policy Director at the Center for Insurance Research, who expressed the view that transparency regarding insurers’ RBC levels is beneficial to consumers.

Following the discussion, the CADTF voted to re-expose Proposal 2024-16-CA for a 45-day comment period ending May 9, 2025, and to request responses to the following questions:

1. As it is currently drafted, the proposed edits in Proposal 2024-16-CA do not include any edits to the Five-Year Historical Data page in the annual statement blanks. Are there any comments/objections to adopting the proposed edits to the Preamble “as is?”
2. Please provide examples of ways in which RBC ratios are used other than the intended purposes of identifying potentially weakly capitalized companies.

Valuation of Securities (E) Task Force

The Valuation of Securities (E) Task Force (“VOSTF”) met on March 25. The VOSTF agenda included the following noteworthy topics, among others:

A. An amendment was proposed to require private rating letter rationale reports to be filed within 90 days of an affirmation, update or change of the private rating

One of the VOSTF’s primary functions is to formulate and implement policies relating to the assessment of investment risk associated with insurer-owned investment securities. These policies are codified in the Purposes and Procedures Manual of the NAIC Investment Analysis Office (the “P&P Manual”). Under these policies, the NAIC’s assessment of the level of investment risk of a security is indicated by an NAIC “designation” ranging from NAIC 1.A (lowest risk) to NAIC 6 (highest risk).

The NAIC’s filing exemption (“FE”) process—which is used for an estimated 80% of fixed-income securities held by US insurers—allows a security to automatically receive an NAIC designation based on the rating assigned by an NAIC-recognized credit rating provider (“CRP”) in lieu of having to be filed with the SVO for an assessment and assignment of a designation.
In the case of privately rated securities, since January 1, 2024, the P&P Manual has required a “private rating letter rationale report” to be filed with the SVO in order for the private rating to be eligible for use in the FE process.

At the March 25 VOSTF meeting, and at the SVO’s request, the VOSTF exposed the following amendment to the P&P Manual for a comment period ending on April 25:

The SVO must receive a private rating letter rationale report supporting the assigned private rating no later than 90 days following the date of an annual rating update, any rating affirmation or confirmation, or any rating change, otherwise the SVO will mark the security as ineligible for Filing Exemption. The security can again become eligible for Filing Exemption at such time as the SVO receives the private rating letter rational[e] report related to such rating action for that filing year.

B. An amendment was proposed to require private rating letter rationale reports to possess “analytical substance”

The P&P Manual defines a “private rating letter rationale report” as follows:

an analytical review of the privately rated security explaining the transaction structure, methodology relied upon, and, as appropriate, analysis of the credit, legal and operational risks and mitigants supporting the assigned NAIC CRP rating, in a report issued by an NAIC CRP on its letterhead or its controlled website to an issuer or investor, obtained by an insurer in its capacity as an investor in the issuance or by following the confidentiality process established by the NAIC CRP.

Based on its first year of experience in reviewing private rating letter rationale reports, the SVO asked the VOSTF to establish a stricter standard for the content of these reports. Currently, the P&P Manual states that a private rating letter rationale report “should mirror the work product that a CRP would produce for a similar publicly rated security.” At the March 25 meeting, at the SVO’s request, the VOSTF exposed the following revision to that provision for a comment period ending on April 25, 2025:

A private rating letter rationale report shall be no less comprehensive than the work product that a CRP would produce for a similar publicly rated security and always include sufficient analytical content to enable an independent party to form a reasonable opinion of the basis for the CRP’s assessment of investment risk.

If this amendment is adopted by the VOSTF, there would be a risk that any private rating letter rationale report that the SVO deems not to meet the above criteria would not “count,” such that the privately rated security would not be treated as FE-eligible until a private rating letter rationale report is furnished to the SVO that meets the SVO’s expectations.

The proposed amendment would also delete a provision that is currently in the P&P Manual that limits the obligation to file annually updated private rating letter rationale reports to securities where “such rationale update would normally be produced by the CRP for a comparable publicly rated security.” In other words, the SVO wants to see annual updated private rating letter rationale reports for all privately rated securities—full stop.

C. The SVO provided statistics on privately rated securities that have been removed from FE status due to lack of a rationale report

Marc Perlman, SVO Managing Investment Counsel, presented a report with statistics on privately rated securities for which the required rationale report was lacking. He said that as of November 11, 2024, there were 1,636 such securities; as of December 31, that number had dropped to 853; and as of February 27, 2025, that number had dropped to 494. He stated that between November and February the SVO and VOSTF Chair had held five meetings with industry representatives to discuss and review the securities that were missing a required rationale report in order to help reduce the number. As a result of that interactive work, as of March 3, there were only 346 privately rated securities that lacked the required rationale report and were accordingly removed from FE. Mr. Perlman noted that a list of those securities has been published in the NAIC’s AVS+ system, and that those securities can be reinstated if an insurer submits the missing rationale report.

D. The SSG provided an update on its work to develop a modeling methodology for assigning NAIC designations to collateralized loan obligations

In February 2023, the VOSTF amended the P&P Manual to make collateralized loan obligations (“CLOs”) a financially modeled security, similar to commercial and residential mortgage-backed securities. That provision cannot be implemented, however, until a modeling methodology is developed by the SSG (and a CLO Ad Hoc Group working with the SSG). At the March 25 VOSTF meeting, SSG Director Eric Kolchinsky provided an update on progress toward that goal. He reported that the next meeting of the CLO Ad Hoc Group would be held on April 2. He also reported that on March 1 the SSG had posted new results on its CLO website using a “three-bucket” methodology proposed by an interested party. He concluded by stating that the SSG continues to cooperate productively with the Academy in connection with the parallel CLO project that is being conducted under the auspices of the RBC IRE WG (see the RBC IRE WG report above), and that the Academy and SSG participate in weekly calls to ensure that their efforts dovetail with respect to CLOs.

VOSTF Chair Carrie Mears also commented on the two parallel CLO projects that are being conducted by the VOSTF and the RBC IRE WG. She stated that both projects would need to be completed prior to implementation of any changes to the RBC treatment of CLOs. The significance of Ms. Mears’ statement is that the modeling project being conducted by the SSG (under the auspices of the VOSTF) is not going to be implemented unilaterally at year-end 2025 if the project being conducted by the Academy (under the auspices of the RBC IRE WG) is not yet complete—and all indications are that the Academy’s work will not yet be complete by year-end 2025.

Risk-Based Capital Model Governance (EX) Task Force

The Risk-Based Capital Model Governance (EX) Task Force (RBC MG TF), which reports directly to the NAIC Executive (EX) Committee, met on March 25, following on the heels of its inaugural meeting on March 17 (which we discussed in a March 20 Legal Update). The March 25 meeting agenda included the following topics:

A. The RBC MG TF reviewed the charges that it had adopted on March 17

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, the Capital Adequacy Task Force, the Accounting Practices and Procedures Task Force, and the Valuation of Securities Task Force. The work of the RBC NG TF 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.

B. The RBC MG TF reviewed written comment letters and received additional oral comments

The RBC MG TF heard oral comments from the interested parties who had submitted comment letters (included in the meeting materials) and from two additional interested parties who spoke at the meeting: Thomas Sullivan of Sullivan Strategy and Advisory Services, LLC (a former Connecticut Insurance Commissioner and Senior Associate Director at the Federal Reserve Board) and Patrick Reeder, Chief Government Affairs Officer at Everlake Life Insurance Company. All of the commenters expressed support for the RBC MG TF’s goals and charges and offered perspectives on various aspects of the RBC framework, including the need for consistency, transparency, data quality and risk measurement. A point made by task force members and interested parties was that the formation of the RBC MG TF provides an opportunity to communicate the strength of the US RBC system to the global insurance community. Commenters also expressed support for structuring the RBC model governance framework to maximize consistency and address such considerations as asset valuation and the interplay between the RBC framework and relevant statutory accounting principles.

C. The RBC MG TF discussed next steps, including an ambitious timetable

The Co-chairs stated that the NAIC is close to hiring an external consultant to assist the RBC MG TF with objective analysis and technical expertise, including assistance with the gap analysis and the development of guiding principles for future RBC adjustments.

They also said that the RBC MG TF will use the questions outlined in its February 9 memorandum (included in the meeting materials) as a starting point for drafting the guiding principles, with the goal of finalizing the guiding principles at the NAIC’s Summer 2025 National Meeting.

Financial Condition (E) Committee

The NAIC Financial Condition (E) Committee (the “E Committee”) met on March 26. The “E” Committee agenda consisted mainly of receiving reports from its underlying task forces and working groups, but there was also a brief update on certain initiatives relating to the Framework for Regulation of Insurer Investments—A Holistic Review.

Chair Nathan Houdek reported that the process of retaining an external consultant to design and implement a robust due diligence framework for the NAIC’s use of CRPs is nearly complete, and that the identity of the consultant would be announced in the near future.

Chair Houdek also said that changes to the “E” Committee’s subcommittee structure, as well as staffing to support the NAIC’s investment-related functions, are in the process of being developed and will be announced at or before the NAIC’s Summer 2025 National Meeting.

To view additional updates from the US NAIC Spring 2025 National Meeting, visit our meeting highlights page.