NAIC Working Group Discusses Potential Changes to Life Risk-Based Capital Factors for Certain Asset Classes

On Tuesday, February 10, 2026, the Life Risk-Based Capital (E) Working Group (Life RBC WG) held an interim meeting via teleconference, led by newly appointed Chair, Ben Slutsker of the Minnesota Department of Commerce. His predecessor, Philip Barlow of the District of Columbia Department of Insurance, Securities and Banking, has now assumed the role of Vice Chair.

Discussion of Changes to Life RBC Factors for Collateral Loans

At the February 10, 2026 meeting, the Life RBC WG discussed written and oral comments on conceptual Proposal 2025-16-L, which recommended the establishment of new RBC factors for collateral loans based on the underlying collateral type. For background on this topic, see the our Legal Update on NAIC investment-related developments in the fall of 2025.

Written comments on the proposal were submitted by the American Council of Life Insurers (ACLI), the Iowa Insurance Division (IID), Security Benefit Life Insurance Company (SBL), and the Alternative Credit Council. The comment letters are available as Attachments 3 to 6 in the meeting materials. In addition, representatives of the ACLI, IID, and SBL were present at the meeting to give oral summaries of their written comments.

After the oral summaries, Chair Slutsker focused on identifying key areas of consensus and areas yet to be resolved.

Areas of consensus included the following:

• There was a consensus around the basic principle of assigning different RBC factors to collateral loans based on the underlying collateral type, rather than a single RBC factor for all collateral loans.

• For collateral loans backed by mortgage loans, there was a consensus in favor of continuing the approach that was adopted in 2024, which uses the Schedule BA mortgage RBC factors for mortgage “loan on loan” investments. (Note that this represents a rejection of the suggestion within the November 14, 2025 conceptual proposal to assign a 3.00% RBC factor to all collateral loans backed by mortgage loans.)

• For other types of collateral loans, there appeared to be a consensus that the RBC factor should be lower than the RBC factor of the underlying asset to reflect overcollateralization. (Note that this represents a rejection of the suggestion within the November 14, 2025 conceptual proposal to assign an RBC factor to collateral loans backed by equity interests in joint ventures, partnerships, and limited liability companies (30%) and collateral loans backed by residual tranches or interests (45%) that would be identical to the RBC factor that would have applied if an insurer owned the underlying interests directly.)

Areas yet to be resolved included the following:

• There was not yet a consensus on the precise algorithm to be used to give credit for overcollateralization. As one potential solution, NAIC staff developed a revised exposure draft that proposes assigning RBC factors to collateral loans backed by equity interests (24%) and residual tranches or interests (36%) calculated as 80% of the RBC factor that would have applied if an insurance company owned the underlying interests directly. The rationale for that simple solution was that 80% is the maximum loan-to-value (LTV) ratio permitted for collateral loans under the insurance codes in a number of states. However, other potential solutions were also proposed. One proposal was a more granular approach that would give credit for the actual amount of overcollateralization in any given collateral loan. Another proposal was an intermediate approach that would provide for a small number of LTV bands, rather than a single uniform 80% multiplier in all cases. There was also a suggestion that credit for overcollateralization should also be provided for collateral loans backed by mortgage loans, although that suggestion did not seem to have as much traction in the discussion.

• The biggest unresolved question is the proposed effective date for any changes in the RBC factors for collateral loans. Several state regulators expressed a preference for adopting the changes in the first half of 2026, and for making the changes effective for the December 31, 2026 RBC calculations. Proponents of that approach tend to view the current 6.8% RBC factor for collateral loans as a problem that needs to be fixed and would like to implement that fix sooner rather than later. On the other hand, comments from interested parties and one state regulator indicated a preference for a December 31, 2027 effective date. Proponents of that approach suggest that insurers should have additional time to adjust to any newly adopted factors—especially since there is unlikely to be any “grandfathering” for existing investments. They may also believe that working out the details of the new RBC factors will require more analysis and discussion than can be accomplished in the first half of 2026.

At the conclusion of the discussion, Chair Slutsker announced that the NAIC staff’s revised exposure draft would be exposed for a comment period ending March 6, 2026.

Proposal to Extend Favorable RBC Treatment for Residential Mortgage Loans to Include Unaffiliated Schedule BA Mortgage Funds

When life insurers invest in mortgage loans through a fund structure, that investment is accounted for under SSAP No. 48—Joint Ventures, Partnerships and Limited Liability Companies, is reported as a single line item on Schedule BA of the statutory investment schedules, and is valued at the audited GAAP equity value of the fund. Such investments are often referred to as “Schedule BA Mortgages,” to distinguish them from “Schedule B Mortgages,” which are directly owned by the insurer (or, under the recent amendments to SSAP No. 37—Mortgage Loans, held by the insurer through a qualifying statutory trust) and are reported on a loan-by-loan basis on Schedule B.

Historically, the Life RBC factors for Schedule BA residential mortgage loan (RML) funds have been higher than the Life RBC factors for directly owned RMLs reported on Schedule B. For RMLs in good standing, the Schedule B RBC factor is 0.68%, whereas the Schedule BA RBC factor was set at 1.75% (or even 3.00% if the RMLs held in the fund were not primarily senior liens). Insurers therefore faced a trade-off between convenience and capital treatment. Investing in RMLs through a mortgage fund enabled insurers to report the investment as a single line item on Schedule BA, but incurred an RBC charge of 1.75% instead of 0.68%.

That changed in 2024, when the Life RBC WG adopted Proposal 2024-05-L and Proposal 2024-17-L, which created a new RBC line item for Schedule BA mortgage funds that meet two conditions: (i) they are affiliated with the insurer; and (ii) their holdings consist solely of RMLs in good standing. Schedule BA mortgage funds that satisfy those two conditions now receive the same 0.68% RBC factor as Schedule B RMLs in good standing. The rationale for applying the same 0.68% RBC factor to an affiliated Schedule BA RML fund was that if the Schedule BA structure is affiliated with the insurer (which means it is controlled by the insurer or under common control with the insurer), then the insurer has the ability to obtain the detailed information about the underlying mortgage loans and confirm that they meet the criteria, i.e., that they are RMLs in good standing.

The newest development is that, on February 10, 2026, the Life RBC WG exposed for comment Proposal 2026-02-L, which would extend the favored 0.68% RBC treatment established in 2024 for Schedule BA mortgage structures that are affiliated with the insurer to also include Schedule BA mortgage structures that are unaffiliated with the insurer. The other criterion for 0.68% RBC treatment—that the underlying mortgage loans held in the fund must be RMLs in good standing—would still need to be satisfied. This new proposal refers back to two comment letters submitted by interested parties to the Life RBC WG last year (Attachments One and Four to the February 21, 2025 meeting materials).

The text of the new Proposal 2026-02-L does not address how an insurer that invests in an unaffiliated fund will obtain information about the underlying mortgage loans to confirm that they meet the criteria for the 0.68% RBC factor; i.e., that they are RMLs in good standing. Perhaps this aspect will be fleshed out in the comment letters and/or addressed by the Life RBC WG in its discussion of the comments. Potentially, there could be an eligibility criterion in the governing documents or investment policies of the fund that the loans must be RMLs in good standing, or perhaps the insurer could confirm that the eligibility criterion is satisfied through a periodic report or attestation by the fund manager.

The comment period for this proposal ends on March 12, 2026. This is a very important proposal to watch. Expanding the 0.68% RBC factor that is currently applicable only to direct mortgage loan investments and investments in affiliated mortgage funds to also include unaffiliated mortgage funds would have the potential to increase the already growing interest of life insurers in this asset class.

Comments on both of the above proposals are expected to be discussed at the Life RBC TF meeting at the NAIC Spring National Meeting on March 22, 2026.

Risk-Based Capital Model Governance (EX) Task Force

As discussed in our update on the NAIC Fall National Meeting, on December 10, 2025, the Risk-Based Capital Model Governance (EX) Task Force (RBC Mo Go TF) adopted a set of guiding principles as a “guiding North Star” for governing the purpose and use of, as well as maintaining and prioritizing updates to, RBC requirements.

On February 10, 2026, the RBC Mo Go TF launched its next project: a comprehensive gap analysis and consistency assessment of the RBC framework. On that date, the RBC Mo Go TF issued a request for comments on two broad topics: (1) whether gaps in an RBC formula or all RBC formulas result in material risks not being captured; or (2) whether inconsistencies across components within an RBC formula run counter to RBC’s purpose to identify potentially weakly capitalized companies or meaningfully limit regulators’ assessment of the solvency risk for all or an identifiable segment of companies.

The February 10 memo noted that this new initiative is not just limited to the investment risk component of Life RBC, but encompasses all components of all three RBC formulas (Life, Property/Casualty, and Health).

The February 10 memo “primed the pump” by identifying the following specific areas where input is requested, but it also stated that any other input is welcomed to identify gaps and inconsistencies across the RBC framework.

Gaps

1. What material risks are not adequately captured within the RBC framework that are possibly insufficiently captured elsewhere? When evaluating material risks not adequately captured, consider the following:
1. Risks associated with potential misclassification of a risk (e.g., policy and/or asset class) when applying RBC components.
2. Risks associated with modeling limitations of RBC modeling components, possibly incongruencies with other aspects of the framework (e.g., reserves).
3. Risks associated with inadequate governance related to model monitoring, development, and update processes to effect timely material adjustments to RBC assessments.  
2. Are there material new or emerging risks that the RBC framework does not capture?

Inconsistencies

1. Where do the Life, Property/Casualty, and Health RBC formulas diverge in the treatment of the same or similar risks, resulting in a risk not being treated appropriately in the respective formula (after covariance)? 
2. Within each formula, where do RBC components diverge in the treatment of the same or similar risks, resulting in a risk not being treated appropriately?
3. Which RBC components materially violate the RBC Principles?