Investment-Related Highlights

The NAIC Summer National Meeting was held in Minneapolis from August 10-13, 2025. This Legal Update reports on selected investment-related topics from the Summer National Meeting, as well as a number of interim developments from the interval between the NAIC’s Spring and Summer National Meetings.

Financial Condition (E) Committee

The proposed restructuring of the Valuation of Securities (E) Task Force has been approved

As discussed in our June Legal Update, on June 6 the Financial Condition (E) Committee (“E Committee”) exposed for comment a memo outlining a proposed renaming and restructuring of the Valuation of Securities (E) Task Force (“VOSTF”), including the establishment of three new working groups to support that task force.

At an interim meeting on July 28, 2025, the E Committee received written and oral comments on the proposal and voted unanimously to adopt the proposed renaming and restructuring of the VOSTF, including the proposed charges for the task force and each of the new working groups, as set out in the memo.

That means that on January 1, 2026, the current VOSTF will become the Invested Assets (E) Task Force (“IATF”) and will become a commissioner-level group, with a mission to help state insurance regulators understand and address risks associated with insurance company investments, with a particular focus on “new or evolving investment products that may possess characteristics that pose unique risks to insurers and the industry.”

Notably, the IATF will also be responsible for coordinating with other NAIC groups on all matters relating to investment regulation. For example, when the IATF identifies aspects of insurer investments that have implications for statutory accounting, it will coordinate with the Statutory Accounting Principles (E) Working Group (“SAPWG”) to address those aspects. And when the IATF identifies aspects of insurer investments that have implications for the risk-based capital (“RBC”) system, it will coordinate with the Capital Adequacy (E) Task Force (“CADTF”) and its working groups to address those aspects. In other words, the IATF is charged with ensuring that all of the NAIC groups that address insurer investments are working together, rather than in “silos.”

The IATF will be supported by three new working groups:

• The new Investment Analysis (E) Working Group will meet primarily in “regulator only” sessions, because one of its tasks will be to analyze insurers and groups of insurers that hold new, evolving, or riskier investments and to advise the state of domicile on applicable risks. From discussions with NAIC staff, it appears that one of the goals of this working group is to deal directly with specific insurers and groups of insurers that have higher exposure to asset classes that the working group is concerned about, and that regulators may view such an insurer-specific approach as preferable to a more “broad brush” approach of changing the rules that apply to an entire asset class (as was done, for example, with the 2024 decision to increase the Life RBC charge for all residual interests from 30% to 45% across the board).

• The new Securities Valuation Office and Structured Securities (E) Working Group will take over the functions of the current VOSTF relating to monitoring the Securities Valuation Office (“SVO”) and Structured Securities Group (“SSG”) and maintaining the Purposes and Procedures Manual of the NAIC Investment Analysis Office (“P&P Manual”), which governs the operations of the SVO and SSG. This will include determining the scope of the filing exemption that allows most fixed-income securities to automatically receive an NAIC Designation based on the rating assigned by an NAIC-recognized credit rating provider (“CRP”). It will also include determining when certain types of securities need to be modeled and/or filed with the SSG, as is currently the case for mortgage-backed securities and may soon become the case for collateralized loan obligations as well. Interestingly, the June 6 memo also mentioned collateralized fund obligations as another asset class that could be considered for modeling in the future, suggesting that this topic will be “on the radar” of this new working group.

• The new Credit Rating Provider (E) Working Group will be responsible for overseeing the implementation of two new NAIC initiatives: (i) the process whereby the SVO and SSG will have the discretion, beginning in 2026, to challenge the use of a CRP rating to determine the NAIC Designation for a filing-exempt security; and (ii) the implementation of a new due diligence framework to govern the NAIC’s use of CRPs, which the NAIC recently engaged an independent consultant to develop.

For more details, please see the June 6 memo and our June Legal Update. The minutes of the July 28 E Committee meeting, which include summaries of the comments received on the VOSTF restructuring, are available as Attachment One to the meeting materials.

Statutory Accounting Principles (E) Working Group

New reporting requirement adopted for Funds Withheld and Modco assets

On May 22, 2025, the SAPWG adopted agenda Item 2024-07—which had been under discussion since 2024—which will add a new Schedule S, Part 8, to the life/fraternal annual statutory financial statement, specifically identifying assets associated with Funds Withheld and Modified Coinsurance (“Modco ”) reinsurance agreements. The new reporting requirement will be limited to assets where the investment risk is transferred to the reinsurer, in order to align with the RBC instructions, which provide that assets for which the investment risk is transferred to a reinsurer are excluded from the RBC calculation for the ceding insurer, and included in the RBC calculation for the reinsurer. The new requirement will be effective for 2025 annual reporting.

New reporting requirement adopted for Funds Withheld and Modco assets that are related to the reinsurer

On May 22, the SAPWG also adopted agenda item 2025-05, which amended SSAP No. 1—Accounting Policies, Risks & Uncertainties, and Other Disclosures to require insurers to disclose in their annual and quarterly statutory financial statements the extent to which assets associated with Funds Withheld and Modco reinsurance agreements are related to the reinsurer.

This agenda item originated with a January 7 referral from the NAIC Financial Analysis (E) Working Group (“FAWG”), which meets in regulator-only sessions to deal with financially troubled insurers. The FAWG memo referred to a recent situation where a reinsurer or its affiliated investment manager had allocated a significant portion of Funds Withheld and Modco assets into securities that were later discovered to be issued by related parties of the insurer. The FAWG memo asked the SAPWG to consider requiring enhanced disclosures that would identify the extent to which Funds Withheld and Modco assets involve various types of investment exposure to the reinsurer or a related party of the reinsurer. 

To implement its amendment to SSAP No. 1, the SAPWG recommended that a new table be added to the restricted assets disclosure in Note 5L to the statutory statements, in which insurers would disclose the aggregate dollar amount of Funds Withheld and Modco assets, broken out by (i) type of investment, and (ii) whether and how the investment is related to the reinsurer. The NAIC Blanks (E) Working Group has since adopted the new disclosure requirements recommended by the SAPWG.

At the May 22 SAPWG meeting, a number of comments were considered, including concerns that a ceding insurer might not have access to information about whether or how a Funds Withheld or Modco asset is related to the reinsurer, and that the reinsurer might not even have an obligation under the reinsurance agreement to provide such information. However, the fact that the proposal was a response to a FAWG referral and was designed to help avert troubled company situations was considered sufficiently compelling that the SAPWG voted to adopt the reporting changes as proposed without any changes, effective December 31, 2025.

Temporary relief for negative IMR extended through December 31, 2026

Two years ago, on August 13, 2023, the SAPWG adopted a statutory interpretation, INT 23-01: Net Negative (Disallowed) Interest Maintenance Reserve (“IMR“), which prescribed 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 require nonadmittance of net negative (disallowed) IMR. Under the INT 23-01 temporary guidance, a life insurer is permitted to admit net negative (disallowed) IMR up to 10% of the insurer’s adjusted general account capital and surplus. INT 23-01 expressly stated that it was a short-term solution until December 31, 2025 and would be automatically nullified on January 1, 2026.

However, by an e-vote that concluded on June 5, the SAPWG exposed proposed revisions to INT 23-01 that would extend the short-term solution for an additional year until December 31, 2026, with automatic nullification to occur on January 1, 2027. The revisions also include a number of clarifying modifications, and they add an additional cap to limit admittance to 10% of the current period unadjusted capital and surplus. At the SAPWG meeting on August 11, the proposed extension and revisions to INT 23-01 were adopted.

Revised proposal to add new accounting and reporting guidance for residential mortgage loans held through statutory trusts

At the May 22 SAPWG meeting, the SAPWG exposed for comment, as Item 2025-13, proposed amendments to SSAP No. 37—Mortgage Loans that would allow residential mortgage loans held by an insurer through a qualifying statutory trust to be treated as mortgage loans on a “look through” basis for statutory accounting purposes and reported on Schedule B of the statutory statements. The use of statutory trusts to hold residential mortgage loans is widespread because the use of a federally chartered bank as the trustee obviates the need for the insurer to obtain a lending license in certain states in order to originate or hold the mortgage loans. Currently, SSAP No. 37 only recognizes investments as mortgage loans if the insurer is the lender of record or has a qualifying participation agreement with the lender of record. Accordingly, insurers that hold residential mortgage loans through a statutory trust have been in a quandary as to how to account for and report that investment, with different insurers taking different approaches.

At the August 11 SAPWG meeting, the SAPWG exposed for comment an updated version of Item 2025-13. The updated version of the proposed SSAP No. 37 amendments reflects changes made by NAIC staff in response to comments received. The revised draft provides an explanation of how each comment was addressed and reflects a conscientious effort by NAIC staff to constructively address insurers’ use of statutory trusts to hold residential mortgage loans—including the use of trusts with multiple series of beneficial interests. In order to qualify for “look through” treatment, a statutory trust would need to meet certain specified criteria, including that the insurer must own a 100% beneficial interest in the trust (or in a single series of a trust with multiple series) and that the trust can hold no other types of assets besides mortgage loans, cash and real estate acquired as a result of foreclosed mortgages. In particular, a trust that represents a commingled vehicle with multiple owners of the same pool of mortgage loans would not be a qualifying trust.

The SAPWG exposed the revised draft of Item 2025-13 for a comment period ending on October 17, 2025. We consider it likely that the proposed amendments will be adopted at the NAIC Fall National Meeting in December, with a planned effective date of December 31, 2026.

Proposal to eliminate the “investment subsidiary” concept from statutory reporting and RBC instructions

Agenda Item 2024-21 originated in 2024, but was put on hold while the NAIC staff focused on the use of statutory trusts to hold residential mortgage loans (discussed above). With that project nearing completion, the staff has refocused its attention on the “investment subsidiary” concept, noting that the concept was eliminated 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. Although no longer addressed in SSAP guidance, the “investment subsidiary” concept is still found in the annual statement instructions, where it is defined as “any subsidiary, other than a holding company, engaged or organized primarily to engage in the ownership and management of investments for [the insurer].” In addition, the Life RBC instructions provide that the RBC charge for the ownership of an investment subsidiary is calculated based on the RBC of the underlying assets, pro-rated for the degree of ownership—thus replicating the RBC charge that would apply if the life insurer held the assets directly. The concept of an investment subsidiary is also found in the insurance codes of many states.

Desiring to restore consistency across the statutory accounting guidance, the annual statement reporting and the RBC instructions, the NAIC staff had two main options: either restore the “investment subsidiary” concept to statutory accounting guidance (presumably in SSAP No. 97) or seek to eliminate the “investment subsidiary” concept from statutory reporting and the Life RBC instructions. Based on their discussions with state insurance regulators, the staff opted for the latter approach, which is reflected in an updated version of Item 2024-21 that the SAPWG voted on August 11 to expose for a comment period ending October 17, 2025. The NAIC staff explained that this change would not prevent insurers from using investment subsidiaries, but it would eliminate the investment subsidiary concept from statutory reporting and the Life RBC instructions, meaning that the RBC would no longer be calculated on a “look through” basis. It should also be noted that a change to the statutory statement instructions would also require action by the Blanks (E) Working Group and that a change to the Life RBC instructions would require action by the Life Risk-Based Capital (E) Working Group and Capital Adequacy (E) Task Force.

Proposal to add new disclosure and reporting requirements for private placement securities

At its August 11 meeting, the SAPWG exposed for comment a new agenda Item 2025-19 relating to private placement securities. This proposal would add an electronic column to insurers’ investment schedules to indicate whether a security is registered with the SEC or is exempt from registration pursuant to Rule 144A, Regulation D or Section 4(a)(2) of the Securities Act of 1933. In addition, aggregate disclosure would be added to the notes to the statutory statement, capturing (for each of the above categories) the total book adjusted carrying value (“BACV“), fair value (with fair values determined by level 2 and level 3 reported), total amount of aggregate deferred interest and paid-in-kind interest, and total BACV supported by a private letter rating. The comment deadline is September 17, 2025, to allow comments to be considered by the SAPWG prior to sponsoring a proposal for consideration by the Blanks (E) Working Group. If adopted, the new reporting requirements are anticipated to become effective on December 31, 2026.

Special SAPWG meeting scheduled for September 10 to discuss ALM derivatives

The SAPWG will be holding a virtual meeting on September 10, 2025 at 11 a.m. EDT to receive a presentation from life insurance industry representatives regarding proposed statutory accounting guidance for asset-liability matching (“ALM”) derivatives. Attendance is open to all and Webex details are available at the SAPWG website.

Valuation of Securities (E) Task Force

Developments relating to the filing of private rating letter rationale reports with the SVO

In our April Legal Update on the NAIC Spring National Meeting we reported on a number of proposals relating to privately rated securities that were exposed for comment at the March 25 VOSTF meeting. On June 4, the VOSTF held an interim meeting for the discussion of comments received on those proposals, and based on the comments received, the NAIC staff developed revised versions of the proposals that were adopted by the VOSTF at its meeting on August 12.

In its original form, the first of the proposals would have amended the P&P Manual to add the following requirement: “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.” In light of comments received, the SVO staff revised the proposal to delete the words “any rating affirmation or confirmation”—meaning that the requirement to provide an updated private letter rating rationale report would only apply to annual rating updates and to rating changes. With that revision, the proposed amendment was adopted at the August 12 VOSTF meeting.

The SVO’s second March 25 proposal focused on the content of the private rating letter rationale report and sought to establish a stricter standard for the content of those reports by revising the relevant language in the P&P Manual to read: “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.” The implication of the proposed new language was that any private rating letter rationale report that the SVO deemed not to meet the above criteria would not “count,” such that the privately rated security would become ineligible for filing exemption. This raised questions from commenters about what “due process” protections there would be against such a draconian result.

At the June 4 VOSTF meeting, the SVO staff addressed that concern. First, the staff explained that the proposed new language is needed because the SVO has received private rating letter rationale report filings that are seriously lacking in analytical content, with no information about the company/issuer, management, analysis of underlying collateral if that is a key component of its risk, any changes to the deal structure, actual or expected performance, discussion of the current risks, analysis and trends of the financial statements, and comparison to peers—to name just a few things that would typically be in a rating rationale report. Second, the staff responded to concerns about “due process” by proposing adding the following paragraph to the P&P Manual that would outline the procedure to be followed if the SVO deems a private letter rating rationale report to be deficient:

• “If the SVO determines that a private rating letter rationale report does not satisfy minimum expectations, the SVO will file an information request to the filer, in accordance with the process outlined in this Manual for information deficiencies. The information request will provide a reason for the information request to help the filer understand where the private rating letter rationale report lacks sufficient substance. Only if the information request is not fulfilled (e.g. is not responded to in a timely manner, fails to provide a report with sufficient substance) will the SVO reject the filing.”

With the above addition, the P&P Manual amendments relating to the content of private rating letter rationale reports were adopted at the August 12 VOSTF meeting.

Additional adopted and proposed P&P Manual amendments

On August 12, the VOSTF also adopted a technical amendment to the P&P Manualto clarify that, in specified circumstances, a CRP rating will function as a cap on the NAIC Designation assigned by the SVO to a security.

The August 12 VOSTF meeting also exposed for comment (until September 12, 2025) a P&P Manual amendment that would provide a 30-day grace period for annual updates to existing private rating letters to be filed with the SVO following the date of the CRP’s annual update. In other words, the annual update would need to be filed no later than 395 days following the date of the prior calendar year’s initial private rating letter or annual update.

Proposal to align investment reporting with GICRS database

The VOSTF also exposed for comment (until September 12, 2025) an SVO recommendation to combine the identifiers currently used in NAIC reporting (e.g., CUSIP, CINS, ISIN, and PPN) into a single column in the statutory investment schedules, and to add a new reporting field indicating when a security lacks an identifier that can be validated in S&P Global’s Global Instruments Cross Reference Service (GICRS) database of global security identifiers.

One-year delay proposed for implementation of CLO modeling

When we discussed the VOSTF and Risk-Based Capital Investment Risk and Evaluation (E) Working Group (“RBC IRE WG”) sessions in our April Legal Update on the NAIC Spring National Meeting, we noted that there are two parallel projects affecting RBC for collateralized loan obligations (“CLOs”) that are being conducted under the auspices of the VOSTF and the RBC IRE WG, respectively. The VOSTF-led project calls for CLOs to be financially modeled by the SSG, effective on December 31, 2025, whereas the RBC IRE WG is leading a parallel project, with the assistance of the American Academy of Actuaries (“Academy“), to develop a principles-based RBC framework for asset-backed securities, beginning with CLOs, and that project is expected to continue into 2026.

At the NAIC Spring National Meeting, the VOSTF Chair announced that the SSG’s implementation of modeling would be coordinated with the Academy’s CLO RBC project and that the two projects “will be looked at as a complete package for ultimate recommendation, exposure, adoption, and implementation once complete.”

When the VOSTF met on August 12, 2025, the director of the SSG reported that the SSG is operationally and technically prepared to implement financial modeling on December 31, 2025, as specified in the P&P Manual. However, in light of the fact that the Academy’s CLO RBC project is still ongoing, the VOSTF exposed for comment (until September 12, 2025) a P&P Manual amendment to change the effective date for SSG’s financial modeling of CLOs from December 31, 2025 to December 31, 2026, in order to give the Academy and the RBC IRE WG time to complete their analysis of RBC for CLOs.

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

Chair’s update on progress of the Academy’s CLO RBC project

Although the RBC IRE WG did not meet at the NAIC Summer National Meeting, RBC IRE WG Chair Philip Barlow provided an update on the Academy’s progress at the E Committee meeting on August 13. He reported that the Academy has made significant progress and has a working model that is being applied to sample CLOs, using waterfall data supplied by the SSG. He expressed optimism regarding the feasibility of making any RBC structural changes needed in order to meet a December 31, 2026 implementation date. He also said that the RBC IRE WG is planning to hold a regulator-only meeting jointly with the VOSTF and SAPWG to discuss data from the 2024 annual statement filings regarding insurers’ CLO holdings.

Upcoming RBC IRE WG meeting on September 8 to receive an update from the Academy on the CLO project

The RBC IRE WG will be holding a virtual meeting on September 8, 2025 at noon EDT to receive an update from the Academy on its CLO RBC project. Attendance is open to all, and Webex details are available at the RBC IRE WG website.

Project advances to equalize Life RBC treatment of various types of fixed-income funds

On June 23, the RBC IRE WG exposed for comment (until July 23, 2025) Proposal 2025-12-IRE, relating to the SVO Funds Alignment Project. The background of this project is discussed in detail in our commentary on the RBC IRE WG session in our April Legal Update on the NAIC Spring National Meeting. The proposal would make bond mutual funds eligible for an SVO-assigned “look through” Life RBC factor similar to what is currently available for bond ETFs and private bond funds. At the June 23 RBC IRE WG meeting, an industry representative suggested that any such “look through” treatment should be optional, since some life insurers might consider the amount of paperwork necessary to apply for “look through” treatment to be not worth the effort. It was noted in response that no life insurer would be required to file a bond mutual fund with the SVO. The RBC IRE WG also sent a referral to the Health RBC (E) and P/C RBC (E) Working Groups to consider taking similar steps to make bond mutual funds eligible for an SVO-assigned “look through” Health and P/C RBC factor—a potential initiative for which a number of interested parties have expressed strong support.

Capital Adequacy (E) Task Force

The CADTF is the subunit of the E Committee that oversees the NAIC’s RBC system. The working groups that report to it are the RBC IRE WG and three specialized working groups that focus on Life, Property/Casualty and Health RBC.

Discussion of the RBC preamble continues

On May 15, the CADTF continued its discussion of Proposal 2024-16-CA from the NAIC Spring National Meeting (see our April Legal Update on that meeting). This discussion originated with a proposal from one of the state insurance departments that the CADTF consider revising the Preamble to the RBC instructions to discourage the public dissemination of insurers’ RBC ratios. Although nothing in the proposed revisions would remove 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, some observers have a “domino theory” that adoption of the proposal could lead in that direction. Accordingly, the discussion at the May 15 CADTF meeting included comments by interested parties (including consumer representatives) advocating for the continuing transparency provided by the annual statement disclosures, as well as concerns expressed by state regulators regarding the inappropriateness of using RBC percentages to draw comparisons between specific insurers that all have RBC well above the required thresholds. At the conclusion of the May 15 discussion, one state regulator made a practical suggestion to draft a disclaimer explaining the purpose of RBC to accompany the annual statement disclosures, and that approach seems worth pursuing.

The CADTF resumed its discussion of this topic at its August 12 meeting. Included in Attachment 12 to the CADTF meeting materials is a May 30 letter from the American Council of Life Insurers (“ACLI”), urging the CADTF to delay taking action on changes to the Preamble to the RBC instructions to allow all stakeholders to consider key issues and potential unintended consequences. The ACLI letter also includes suggested line edits to the proposed Preamble revisions and expresses a readiness to work with regulators on the wording of a disclaimer explaining the purpose of RBC, along the lines suggested at the May 15 CADTF meeting. At the August 12 CADTF meeting, the Chair reiterated that ever since the RBC system was adopted in 1993, its stated purpose has been to identify weakly capitalized insurers that require regulatory attention, rather than to be a basis for comparing healthy insurers. He also emphasized that nothing in the current agenda would remove 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. He concluded by stating that the CADTF is planning to meet again in October to develop language for a final proposal on the Preamble language.

Changes to 2025 RBC blanks and instructions

On May 15, the CADTF made changes to the blanks and instructions for the December 31, 2025 RBC calculations, which can be viewed at the CADTF’s dedicated web page for RBC changes.

Revisions to time frames for RBC revisions

At its June 30, 2025 meeting, the CADTF adopted revisions to its protocol for the annual cutoff dates for RBC changes that will be effective for the December 31 annual RBC calculations (see Attachment E to the CADTF meeting materials). Previously, the protocol required (i) any proposals that “affect an RBC blank” to be exposed for comment by March 31 and adopted by the CADTF by May 15 of the effective year of the change, and (ii) any proposal that only affects the RBC instructions or factors to be exposed for comment by May 15 and adopted by the CADTF by June 30 of the current year. The revised protocol expands the scope of changes that can be adopted as late as June 30. It requires (i) any proposals that “affect a structural change to the RBC blank” (e.g., additions/deletions of a row or column) to be exposed for comment by May 15 and adopted by the CADTF by June 30 of the current year, and (ii) any proposal that only affects the instructions, a “non-structural change” to the RBC blanks (e.g., description or reference change) or factors to be exposed for comment by May 15 and adopted by the CADTF by June 30 of the current year.

Changes to the RBC treatment of Funds Withheld/Modco assets pledged by a ceding insurer

At its June 30 meeting, the CADTF adopted a recommendation from the Life RBC (E) Working Group to change the Life RBC treatment of assets held in connection with Funds Withheld and Modco reinsurance transactions (see Attachment A to the CADTF meeting materials). Until now, the general rule has been that when the default risk relating to Funds Withheld and Modco assets is transferred to the reinsurer, the ceding insurer gets to reduce its RBC and the reinsurer has to increase its RBC with respect to those assets. On June 30, the CADTF added the following language to the Life RBC instructions to modify that general rule when Funds Withheld or Modco assets are pledged by the ceding insurer:

“For clarity, if any portion of a Modco/Funds Withheld reinsurance agreement asset held as of the year-end date has been used as a pledged asset concurrently with the pledged asset being included as a Modco/Funds Withheld reinsurance agreement asset for any purpose specific to the ceding insurance reporting entity at any time during the year, the RBC for the ceding company shall not be reduced. For example, if any portion of a Modco/Funds Withheld reinsurance agreement asset held as of the year-end date was the collateral in a securities lending, repurchase, or FHLB transaction executed for the benefit of by the ceding entity at any time over the year concurrently with the pledged asset being included as a Modco/Funds Withheld reinsurance agreement asset, then RBC shall not be reduced. In situations where the economic benefit received from pledging the assets inure to the reinsurer throughout the duration of the reinsurance treaty, the cedant is allowed to reduce its RBC for those assets.”

Paving the way for different RBC factors for collateral loans based on the underlying collateral

Also at its June 30, 2025 meeting, the CADTF exposed for comment (until August 14, 2025) a SAPWG memorandum dated June 5, 2025 outlining the changes that the Blanks (E) Working Group adopted on May 29, 2025 to the Asset Valuation Reserve (“AVR“) and Schedule BA to require more granular reporting of collateral loans based on the type of underlying collateral that secures the loan. The SAPWG memo also includes statistics from insurers’ 2024 annual statement note disclosures, showing the breakdown of collateral types underlying collateral loans owned by insurers. Among other things, the statistics show that more than 42% in value of collateral loans held by insurers are backed by equity interests in joint ventures, partnerships and limited liability companies (“LLCs”). The SAPWG memo requests that the CADTF consider developing separate RBC factors tied to the new reporting lines that would differentiate among collateral loans based on the reporting type. To illustrate the point, collateral loans currently receive a Life RBC factor of 6.8% (except for mortgage “loan on loan” structures which use the Schedule BA mortgage RBC factors). So when a life insurer invests in a loan collateralized by the equity in a partnership or LLC instead of holding the equity directly, it currently obtains an RBC factor of 6.8% instead of the 30% factor that would apply if it held the equity directly. That differential could potentially change if the CADTF decides to assign a different—presumably higher—RBC factor to collateral loans backed by joint ventures, partnerships or LLC interests.

Risk-Based Capital Model Governance (EX) Task Force

Background of the new task force

The Risk-Based Capital Model Governance (EX) Task Force (“RBC Mo Go TF”) was created earlier this year and is co-chaired by Judith French (Director of the Ohio Department of Insurance and Chair of the NAIC Life Insurance and Annuities (A) Committee) and Nathan Houdek (Wisconsin Commissioner of Insurance and Chair of the E Committee).

On February 9, 2025, the Co-Chairs issued a memo outlining the task force’s 2025 proposed goals and charges, and noting that the NAIC would be hiring an external consultant to provide technical expertise and analysis to the task force, including assistance with a gap analysis and the development of guiding principles for future RBC adjustments. The consultant that has been retained for this purpose is Bridgeway Analytics.

The RBC Mo Go TF held its first meeting on March 17 and adopted the 2025 proposed charges. As discussed in our April Legal Update, the RBC Mo Go TF met again on March 25 at the NAIC Spring National Meeting to discuss written and oral comments on the 2025 goals and charges. At that meeting, the Co-Chairs announced a goal of finalizing the guiding principles at the NAIC Summer National Meeting.

Exposure of preliminary RBC principles for comment

On June 3, 2025, the RBC Mo Go TF Co-Chairs issued a memo proposing preliminary RBC principles for comment. Key themes of the proposed principles are the following:

• Use of RBC calculations
• RBC calculations are used as a regulatory tool to identify potentially weakly capitalized companies unless otherwise required by law.
• RBC calculations should secondarily acknowledge their impact on the availability of products that meet consumer needs.
• RBC calculations should also be acknowledged as a component of assessing capital adequacy for insurance groups, including internationally active insurance groups.

• Objectivity
• RBC charges should be objective and measured at a consistent statistical safety level.
• RBC charges should reflect the risk exposure they are intended to measure, capturing differences in their risk distributions, with appropriate considerations for concentration, diversification, and tail risks.
• RBC charges should recognize differences in accounting, reserving requirements, and other offsets (e.g., taxes or discounting) and consider overall business practices and their treatment within the framework (e.g., hedging strategies).

• Consistency with statutory accounting
• RBC charges should be derived from values reported in the statutory annual statement.

• Emerging risks: Evaluation of emerging risks should consider the following:
• The level and growth in exposure to the emerging risk;
• How quickly the risk can become materially incorporated into insurers’ business;
• Industry exposure to the risk, as well as industry segment exposure; and
• Identification and measurement limitations of emerging risks.

• Changes to RBC calculations

• Transparency and process
• NAIC RBC stakeholders should collaborate to identify emerging risks that potentially require changes to RBC calculations.
• Changes to RBC calculations shall adhere to the NAIC Open Meeting Policy and should be conducted transparently, allowing stakeholders reasonable time to offer feedback.
• Complex proposals may require a more iterative process.

• Equal capital for equal risk
• RBC charges should balance the appropriateness of the existing charge with the added complexity and materiality of the possible change.
• Refinements to RBC calculations should aspire not to result in deviations from the principle of Equal Capital for Equal Risk.

• Governance
• Components of RBC calculations should adhere to Model Governance Standards that provide processes for model development, documentation standards, validation, ongoing monitoring, and change management.
• The calculations should be understandable and auditable by regulators.
• This will ensure that future adjustments align with guiding principles and supporting guidelines.

RBC Mo Go TF discusses comments on proposed principles at Summer National Meeting

On August 12, 2025, the RBC Mo Go TF met to discuss the comments received on the proposed principles that had been exposed for comment. The comment letters were voluminous, constituting Attachments Four through Nineteen of the RBC Mo Go TF meeting materials. Bridgeway Analytics, the consultant retained by the NAIC to assist the RBC Mo Go TF, provided a written summary of the comments as Attachment Three of the RBC Mo Go TF meeting materials. In addition, Amnon Levy of Bridgeway Analytics presented an oral summary of themes from the comment letters at the meeting. The floor was then opened for authors of the comment letters to give brief oral summaries of their main points.

No short summary can do justice to the breadth of written and oral comments, but the following are some key themes from my perspective:

• The fact that all four leaders of the task force (two Co-Chairs and two Co-Vice Chairs) are state insurance commissioners rather than insurance department staff indicates the high importance that the NAIC is placing on the RBC Mo Go TF.
• The focus of the RBC Mo Go TF is primarily forward-looking—to develop policies and procedures that will govern future RBC changes. There does not appear to be an intention to make fundamental changes to the existing RBC framework.
• There is a desire to identify and address gaps in the current RBC system, particularly with respect to new and emerging risks, and to do so with objectivity, deliberation and transparency.
• The elevation of the principle of “equal capital for equal risk” seems in part to be a reaction to the 2024 decision to increase the Life RBC factor for all types of residual interests from 30% to 45% without distinguishing between different types of residual interests that arguably had different risk profiles.
• There is no unanimity on the question of whether or not the RBC system should have a secondary objective, in addition to the primary objective of identifying potentially weakly capitalized insurers. A significant number of commenters, including but not limited to those commenters who serve as state insurance department staff, argued that solvency considerations should be the sole objective of the RBC system. However, some commentators urged that the availability of capital for product innovation and meeting consumer needs should also be included as a secondary objective. This will be an important debate to watch.

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