NAIC Proposes Reorganization of Subunits Addressing Insurance Company Investments
NAIC Proposes Reorganization of Subunits Addressing Insurance Company Investments
The other shoe has finally dropped. On June 6, 2025, the Investment Framework Drafting Group of the NAIC’s Financial Condition (E) Committee (“E Committee”) issued a content-rich memo outlining a proposed reorganization of the NAIC’s Valuation of Securities (E) Task Force (“VOS TF”), including the establishment of three new working groups to support it. The VOS TF is the subunit of the E Committee that currently oversees the NAIC’s Securities Valuation Office (“SVO”) and Structured Securities Group (“SSG”). Comments on the memo are due by the close of business on Monday, July 21.
The memo, following the NAIC Executive Committee’s launch of a new Risk-Based Capital Model Governance (EX) Task Force (“RBC MG TF”) earlier this year, is another step in the NAIC’s redesign of its framework for oversight of insurance company investments that began with the “holistic review” document that the E Committee exposed for comment nearly two years ago, at the NAIC Summer National Meeting in August 2023. Among other things, the “holistic review” document suggested ways for the NAIC to address the “material, observable shift in insurer investment strategies—primarily, but not limited to, life insurance/reinsurance—toward more private assets, more structured assets and more complex assets.”
A Rechristened and Repurposed Invested Assets (E) Task Force
The memo proposes to rename the VOS TF as the Invested Assets (E) Task Force and to make it an insurance commissioner-level group—in contrast to the current VOS TF, which nominally consists of insurance commissioners, but in practice is comprised of senior staff of state insurance departments who possess investment-related expertise.
The Invested Assets (E) Task Force would oversee three newly created working groups:
- the Investment Analysis (E) Working Group,
- the Securities Valuation Office and Structured Securities (E) Working Group, and
- the Credit Rating Providers (E) Working Group.
The Invested Assets (E) Task Force would also provide a forum to educate regulators on “investment products, their performance, and the financial risks for regulatory policy purposes, as well as how regulators may address such risks.”
Finally, the Invested Assets (E) Task Force would be charged with understanding “new or evolving investment products that may possess characteristics that pose unique risks to insurers and the industry” and would be responsible for coordinating with different NAIC groups to “develop, implement, or advise on investment-related solvency policy changes (e.g., accounting, risk-based capital [RBC], etc.) or procedures within their analysis and examination of insurers subject to such risks.”
That theme—helping insurance regulators understand and address risks associated with insurance company investments—recurs throughout the entire memo, which is less than four pages long and is worth reading in its entirety. The following is a brief review of the responsibilities proposed for the three new working groups.
A New Investment Analysis (E) Working Group
The Investment Analysis (E) Working Group is “intended to be the primary group under which modernized investment services for the U.S. system are achieved.” Membership of this working group will be capped at 13, with a preference for an even smaller size if possible.
This working group will monitor the risks associated with all types of invested assets, but with a special focus on understanding the details and the risks associated with “new or evolving investment products or new investment characteristics that could pose unique risks to insurers.” This will include analyzing insurers and groups that hold “new, evolving, or riskier investments” and advising the state of domicile on applicable risks.
Several of the charges assigned to this working group call for enhancing the availability and use of technology and data resources, such as overseeing a revised portfolio analysis product, improving the availability of investment data points from existing NAIC databases, providing investment software that facilitates portfolio analysis and portfolio modeling, and facilitating the use of company-designed risk dashboards.
Importantly, the memo states that most, if not all, of the meetings of this working group will be held in closed “regulator only” sessions. The NAIC generally has an open meetings policy, but exceptions can be made when the discussion or action includes, among other things, specific companies, entities or individuals. There is apparently an expectation that discussions of specific companies will be a sufficiently significant component of this working group’s agenda to warrant making most if not all its meetings “regulator only” sessions. The fact that representatives of the insurance and other financial services industries will not ordinarily be present at the meetings of this working group underscores the important role that will be played by NAIC staff who will have the ear of the working group—the SVO, the SSG, and the Capital Markets Bureau.
A New Securities Valuation Office and Structured Securities (E) Working Group
This new working group would have functions similar to those of the current VOS TF; i.e., overseeing the SVO and the SSG, maintaining the Purposes and Procedures Manual of the NAIC Investment Analysis Office, and keeping that manual in sync with the statutory accounting and reporting guidance. The working group would also make recommendations to the Invested Assets (E) Task Force regarding the scope of securities required to be filed with the SVO and the scope of securities required to be modeled and/or filed with the SSG. It would also oversee private letter rating submissions and review processes.
When the memo refers to making recommendations regarding the scope of securities required to be modeled and/or filed with the SSG, a list of examples follows in parentheses: “(e.g., collateralized loan obligations [CLOs], collateralized fund obligations [CFOs], mortgage-based [sic] securities [MBS]).” Mortgage-backed securities have been financially modeled for many years, and CLOs were added to the list of financially modeled securities in 2023. The modeling of CLOs is not yet operational, however, since the methodology is still being developed, and the VOS TF chair has stated that any actual implementation of modeling will need to be coordinated with the work on CLOs being conducted by the American Academy of Actuaries under the auspices of the RBC Investment Risk and Evaluation (E) Working Group. The inclusion of CFOs in the above list along with MBS and CLOs has sparked questions, since there is no current requirement, or even proposal, for CFOs to be either modeled or filed with the SSG.
When requested clarification on this point from a member of the NAIC staff, they informed that including CFOs in the list was just an example of the types of structured investments that the SSG could work on, that there is no current initiative to look at CFOs, and that if such a project were to be initiated, it would be publicly discussed by the working group and would go through a process similar to the CLO effort. Duly noted that the inclusion of CFOs in the list indicates that the longstanding concerns of the SVO and SSG with that asset class have not gone away.
A New Credit Rating Provider (E) Working Group
This new working group would take on the functions of the current VOS TF relating to credit rating providers (“CRPs”), the NAIC’s term for rating organizations that have been approved by the NAIC to provide credit rating services to the NAIC. In addition, this working group would assume responsibility for overseeing two new initiatives: (i) the development of a due diligence framework to ensure greater consistency, uniformity, and appropriateness in the NAIC’s use of CRPs (which was one of the key initiatives launched by the 2023 holistic review document); and (ii) the implementation of the process granting the SVO the discretion to challenge the use of CRP ratings to determine the NAIC designations on specific securities (which was adopted in 2024 and is scheduled to become operational in 2026). And in that connection, the June 6 memo describing the proposed reorganization of the VOS TF was accompanied by a long-awaited announcement that the NAIC has retained PricewaterhouseCoopers to assist in developing the due diligence framework for the NAIC’s use of CRPs.
Announcement of an External Consultant to Assist the RBC MG TF
On March 25, at the NAIC’s Spring National Meeting, one of the RBC MG TF co-chairs stated that the NAIC was 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. The distribution of the June 6 memo also announced that the NAIC has engaged Bridgeway Analytics to provide consulting services to the RBC MG TF. For more information about the RBC MG TF, please refer to our Legal Update on the NAIC Spring National Meeting.
In the near future, we will also be providing an update on some of the other current initiatives of the VOS TF and the Statutory Accounting Principles (E) Working Group that are discussed in our report on the NAIC Spring National Meeting.
