NAIC Advances Initiatives on Insurance Company Investments at Spring National

Insurance companies, sponsors and other interested parties should take note of key developments concerning investments by insurers at the National Association of Insurance Commissioners’ (NAIC) Spring National Meeting, held in Indianapolis, March 23 – 26, 2025. These include the following items:

• The Risk-Based Capital Investment Risk and Evaluation (E) Working Group (RBC IRE) heard an update from the American Academy of Actuaries (AAA) on its structured securities project, in which it is working to identify and assess attributes that can reliably predict the risks of Collateralized Loan Obligations (CLOs) (such as ratings of CLO tranches, ratings of CLO collateral, subordination and amount of leverage).
• RBC IRE also considered and received comments on the American Council of Life Insurers’ (ACLI) proposal concerning uniform risk-based capital (RBC) treatment for
  
  • Bond mutual funds;
  • Bond exchange-traded funds (ETFs); and
  • Private bond funds,

which today do not receive the same RBC treatment.

• The Life Risk-Based Capital (E) Working Group (Life RBC) exposed, for a 30-day comment period, a proposal to regroup in the life insurer RBC instructions certain Schedule BA line items (including affiliated common stock and residual tranches).
• The Statutory Accounting Principles (E) Working Group (SAPWG) adopted an agenda item to expand Schedule BA/AVR reporting lines for collateral loans and support a related proposal of the Blanks (E) Working Group. The reporting lines would be effective Jan. 1, 2026.
• SAPWG exposed, for a comment period expiring May 2, an agenda item that includes a new component of Schedule S in the NAIC’s annual statement blank for life companies. The new component would require disclosure of investment assets deployed in funds withheld (FWH) and modified coinsurance (Modco) structures.
• In a related item, SAPWG sent a referral to Life RBC to clarify the guidance for when an RBC reduction can occur for FWH and Modco reinsurance agreements. The item includes proposed new language in the life insurer RBC instructions clarifying that, generally, if any portion of an FWH or a Modco asset is being used as collateral in a securities lending, repurchase (repo) or Federal Home Loan Bank (FHLB) transaction, then RBC may not be reduced.
• SAPWG deferred a discussion on investment subsidiaries so that it can further study structures in which Delaware statutory trusts are used to make investments in residential mortgages.
• SAPWG moved to “active listing” an item relating to the ACLI’s proposed new definition of interest maintenance reserve (IMR). Under the definition, IMR would be defined as a “valuation adjustment to maintain consistency between insurance liabilities (the assumptions for which are often unchanged from origin), and the assets needed to support them (where the assumptions can essentially be revisited any time there are fixed income realizations).” The definition goes on to clarify that IMR is “not intended to defer economic gains and losses related to asset sales compelled by liquidity pressures that fund significant cash outflows (e.g., … excess withdrawals and collateral calls).”
• SAPWG received a referral from the Financial Analysis (E) Working Group (FAWG) to consider enhanced reporting or disclosures to identify whether investments held under FWH or Modco arrangements are “related or affiliated to [sic] the reinsurer.”
• The Valuation of Securities (E) Task Force (VOSTF) exposed two proposals relating to securities subject to a private letter rating (PL securities):
  • A proposal that would require the filing of private letter rating Rationale Reports within 90 days of an affirmation, update or change of rating.
  • A proposal that would require 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."