NAIC Spring National Meeting: Key Investment Initiatives
At the National Association of Insurance Commissioners’ (NAIC) Spring National Meeting in Indianapolis, held from March 23-26, 2025, several important initiatives regarding insurance company investments were advanced. These developments impact insurance companies, sponsors, and other interested parties.
Risk-Based Capital Investment Risk and Evaluation (E) Working Group (RBC IRE)
The RBC IRE Working Group received an update from the American Academy of Actuaries (AAA) concerning its structured securities project. The AAA is working to identify and assess the risks associated with Collateralized Loan Obligations (CLOs), including factors such as CLO tranche ratings, collateral ratings, subordination, and leverage.
RBC IRE also considered and received comments on the American Council of Life Insurers’ (ACLI) proposal for uniform risk-based capital (RBC) treatment of Bond mutual funds, Bond exchange-traded funds (ETFs), and Private bond funds. Currently, these funds do not receive the same RBC treatment.
Life Risk-Based Capital (E) Working Group (Life RBC)
The Life RBC Working Group exposed a proposal for a 30-day comment period. The proposal would reorganize specific Schedule BA line items, including affiliated common stock and residual tranches, within the life insurer RBC instructions.
Statutory Accounting Principles (E) Working Group (SAPWG)
The SAPWG adopted an agenda item to expand Schedule BA/AVR reporting lines for collateral loans, supporting a related proposal from the Blanks (E) Working Group. These expanded reporting lines are slated to take effect on January 1, 2026.
SAPWG also exposed an agenda item for public comment, with a deadline of May 2. This item introduces a new component to Schedule S in the NAIC’s annual statement blank for life companies. This new component requires disclosure of investment assets deployed in funds withheld (FWH) and modified coinsurance (Modco) structures.
In a related matter, SAPWG referred an item to Life RBC to clarify guidance around when an RBC reduction is permissible for FWH and Modco reinsurance agreements. The item includes proposed new language in the life insurer RBC instructions. Generally, if any portion of a FWH or Modco asset is used as collateral in a securities lending, repurchase (repo), or Federal Home Loan Bank (FHLB) transaction, RBC may not be reduced.
SAPWG deferred discussion on investment subsidiaries to further analyze structures using Delaware statutory trusts for investments in residential mortgages.
Furthermore, SAPWG moved to “active listing” an item concerning the ACLI’s proposed new definition of interest maintenance reserve (IMR). This definition clarifies that IMR is a “valuation adjustment” designed to maintain consistency between insurance liabilities and the supporting assets. The definition emphasizes that IMR is not intended to defer gains and losses related to asset sales driven by liquidity pressures.
SAPWG received a referral from the Financial Analysis (E) Working Group (FAWG). The referral concerns enhanced reporting or disclosures to identify whether investments held under FWH or Modco arrangements are “related or affiliated to [sic] the reinsurer.”
Valuation of Securities (E) Task Force (VOSTF)
The VOSTF exposed two proposals pertaining to securities subject to a private letter rating (PL securities):
- A proposal requiring the filing of private letter rating Rationale Reports within 90 days of an affirmation, update, or rating change.
- A proposal requiring rationale reports to include “sufficient analytical content to enable an independent party to form a reasonable opinion of the basis for the [rating agency’s] assessment of investment risk.”
Written by: Kramer Levin Naftalis & Frankel LLP
