As the deadline for finalizing the format of all the Risk-Based Capital (RBC) formulas approaches (May 15), the various RBC Working Groups picked up their activity and will most likely continue to do so through early May.
Joint Meeting of Life Risk-Based Capital (RBC) Working Group and Life Actuarial Task Force (LATF) – April 9, 2025
The meeting was very technical in nature, as one of the main purposes was to bring the Life RBC Working Group up to speed on the work being done by LATF, since ultimately that work will have a direct effect on the Life/Fraternal RBC formula.
The focus of the meeting was work being done on the economic scenario generator. There were four items on the agenda:
- Amendment Proposal Form (APF) 2025-04, issued by LATF
- American Council of Life Insurers (ACLI) deterministic reserve (DR) presentation/discussion
- Conning DR presentation/discussion
- Generator of Economic Scenarios (GOES) Model Governance
APF 2025-04 had previously been exposed for comment on a subgroup level. Since that exposure, it has undergone some revisions, including a suggested phase-in period. Although the chair of LATF admitted the proposal probably needs some additional wordsmithing, it was released for a 21-day re-exposure period ending April 29, with hopes of acting upon it during LATF’s May 1 meeting.
Joint Meeting of Statutory Accounting Principles Working Group (SAPWG) and Life Actuarial Task Force (LATF) – April 10, 2025
This meeting concentrated on a review of two current SAPWG exposures, both of which originated with referrals from the Valuation Analysis Working Group (VAWG) in 2023. During 2024, SAPWG exposed both referrals for comment twice, while also notifying LATF and the Reinsurance Task Force (Re TF) of the exposures.
- 2024-05 – Revisions to Appendix A-791, Life and Health Reinsurance Agreements (A-791) would remove a sentence in the A-791, paragraph 2c’s question and answer, which VAWG has indicated is being misinterpreted. The sentence is a statement regarding group term life insurance. Further action on the proposal was deferred.
- 2024-06 – The proposal would amend the language in SSAP No. 61 – Life, Deposit-Type, and Accident and Health Reinsurance. The VAWG referral highlights inconsistencies within the Life industry when evaluating risk transfer of reinsurance where more than one type of reinsurance is involved for a contract. VAWG indicated that where there are separate, but interdependent, contract features, risk transfer must be analyzed in the aggregate for the contract, not each feature separately. If the risk transfer evaluation is not done in the aggregate, the result can be an overstated reserve credit. VAWG also indicated concerns over the classification of reinsurance contracts and, accordingly, the amount of reinsurance credit taken. The proposed revisions address these concerns and also indicate that to truly assess risk transfer, it may be necessary to look at more than one contract with the same reinsurer.
The ACLI provided comments on the proposals via presentation on statutory risk transfer considerations relating to combination Coinsurance (CO)/Yearly Renewable Term (YRT) agreements. Afterward, SAPWG conducted a discussion of key concerns when determining risk transfer and reinsurance credit on CO/YRT life reinsurance contracts.
While considering what SAPWG’s next steps on the issue should be, the Working Group asked industry to provide specific feedback on the proposed new paragraph 18 of SSAP No. 61. Although the proposal is still posted on SAPWG’s webpage, no comment deadline is indicated.
Health RBC Working Group – April 20, 2025
The meeting began with a discussion of a referral from SAPWG regarding INT 24-01, Principles-Based Bond Definition Implementation Questions and Answers. The INT reaffirms that accounting guidance for capital notes has existed within SSAP No. 41, but some companies have not been following that guidance. With the implementation of the new bond definition, that should change. Capital notes are to be reported on Schedule BA in the statement and treated as all other Schedule BA assets within the Health RBC. Unlike the Life/Fraternal RBC, the Health RBC does not afford health companies the ability to use a “look through” approach for capital notes, surplus notes, or other non-bond debt securities to allow the use of bond-like RBC factors. SAPWG sent this referral so the Working Group could consider if modification to the Health RBC formula utilizing the “look through” for those securities with credit rating provider (CRP) ratings should occur. Since it is too late to make any changes for the 2025 formula, the Working Group decided to monitor the reporting of these types of assets for possible future action.
The discussion then moved to INT 24-02, Medicare Part D Prescription Payment Plan (Payment Plans). Another referral from SAPWG, the INT summarizes the general accounting guidelines established for the receivables resulting from the new Payment Plans. To ascertain if changes are needed to the Health RBC accordingly, the Working Group decided to monitor the reporting of the Payment Plans to determine if the materiality of reported amounts indicates a need for further review and possible separate factors. In the meantime, the Payment Plans receivables will be treated as all other healthcare receivables in the RBC.
Next on the agenda was the previously adopted proposal 2025-03-CA. This proposal updated the underwriting factors for comprehensive medical, Medicare supplement, and dental and vision coverages for the investment income adjustment. The factor update occurs annually. Although the proposal was adopted earlier for the Health RBC formula, both the Property/Casualty and Life/Fraternal RBC formulas have identical calculations for those companies providing health coverages. Therefore, the proposal was referred to the Capital Adequacy Task Force for consideration for those formulas.
The American Academy of Actuaries (Academy) then presented its H2-Underwriting Risk Component and Managed Care Credit Calculation in the Health Risk-Based Capital Formula Report. This has been an ongoing project for some time. After a brief summary of activities that had occurred since the last meeting of the Working Group, regulators were given the opportunity to ask questions. The report was then exposed for a 60-day comment period ending June 29, 2025.
The chair announced the Working Group will most likely meet again in June but will not be meeting at the next NAIC in-person meeting in August.
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