As the deadline for making instructional and factor changes to the 2025 Risk-Based Capital (RBC) formulas was the end of June, activity for those groups stepped up a bit. However, with the NAIC Summer National Meeting on the horizon, other groups also were active.
Valuation of Securities Task Force – June 4, 2025
As usual, the main purpose of this meeting was to consider revisions to the Purposes and Procedures Manual of the NAIC Investment Analysis Office (IAO) (P&P Manual).
During the meeting, two items were considered for adoption but instead were re-exposed, and one additional item was exposed for comment.
| Subject | Disposition |
|---|---|
| Requires filing of private rating letter (PLR) rationale reports within 90 days of the annual rating update, or any rating change, to keep the security from being marked as not eligible for filing exemption. | Re-exposed for 14 days through June 18 due to minor revisions. |
| States that PLR rationale reports must contain enough analytical content to allow an independent party to form a reasonable opinion of the basis for the credit rating provider’s assessment of investment risk. | Re-exposed for 14 days through June 18 due to minor revisions. |
| Revises current language for caps on NAIC Designations of credit rating provider-rated securities. | Exposed for comment for 33 days through July 7. |
According to the IAO, 2024 revisions to the P&P Manual replacing the concept of “credit risk” with the concept of “investment risk” led to an unintended consequence in the section of the manual that details the capping of NAIC Designations. What resulted was the inverse of the intent of that section. The adjustments are needed because higher investment risk should equal a lower NAIC Designation, while higher credit quality equals a higher NAIC Designation.
Statutory Accounting Principles Working Group (SAPWG) – via email June 2 & 5, 2025
There is a long period of time between the NAIC Spring National Meeting (usually March) and the Summer Meeting (usually August). Traditionally, SAPWG holds a meeting in May to finalize items that result in statement format changes for the year and expose for comment some new items. Sometimes SAPWG will release new items during the summer to be acted upon in August. That is what has happened this year. So far, the following items have been exposed for comment.
| Reference # | Subject | Disposition |
|---|---|---|
| 2024-05 | Deletes a sentence in the Accounting Practices and Procedures Manual, Appendix A-791, paragraph 2 c. | Exposed for comment through July 14. |
| 2024-06 | Revises Statement of Statutory Accounting Principles (SSAP) No. 61, Life and Accident and Health Reinsurance regarding risk transfer on combination reinsurance contracts with interdependent contact features. | Exposed for comment through July 14. |
Both of the above items came as referrals from the Valuation Analysis Working Group and had previously been exposed for comment. This version of the proposals incorporates some suggested changes from the exposure period. In essence, 2024-06 addresses risk transfer where more than one type of contract may be in place for the same risk.
| Reference # | Subject | Disposition |
|---|---|---|
| 2022-19 | SAPWG extends INT 23-01 – Net Negative (Disallowed) IMR through December 31, 2026; clarifies which financial reporting period is to be used for limitation measurements; and clarifies applying the limitation to the admitted amount. | Exposed for comment through July 14. |
Joint Meeting of the Property and Casualty Risk-Based Capital (RBC) Working Group and Catastrophe Risk Subgroup – June 11, 2025
The following actions were taken on previously exposed items.
| Reference # | Subject | Disposition |
|---|---|---|
| 2025-09-P | Provides annual updates to the Underwriting Risk, line 1 factors. | Adopted effective for year-end 2025. |
| 2025-11-CR | Adds wildfire and severe convective storm perils to the catastrophe attestation. | Adopted effective for year-end 2025. |
The groups then reviewed the 2024 RBC filing statistics. The statistics showed that 96% of the Property/Casualty companies filing an annual statement also filed the RBC report. There was a slight increase in the number of companies filing the RBC, but the results showed a slight decrease in the number of companies that triggered an RBC action level. In addition, the vast majority of companies had RBC ratios over 300%, with approximately 1,400 companies having a ratio greater than 1000%. The statistics will be posted to the Working Group’s webpage. Updates were provided on the ongoing wildfire impact analysis, with the goal of the analysis being completed by the end of July. Next on the agenda was discussion of the climate impact disclosures. Further work on the disclosures has been suspended for now, as there needs to be discussions with FEMA on the topic. However, with the recent government actions concerning FEMA, it is uncertain when those discussions may occur.
Life Risk-Based Capital (RBC) Working Group – June 18, 2025
The following actions were taken.
| Reference # | Subject | Disposition |
|---|---|---|
| 2025-10-L | Instructional clarification on RBC credit for modified coinsurance (modco)/funds withheld (FWH) reinsurance. | Adopted effective for year-end 2025. |
The adopted instructional change was the result of a referral from SAPWG and clarifies that if any part of a modco/FWH asset is concurrently being used as a pledged asset for a purpose specific to the ceding insurer at any time during the year, the ceding company cannot reduce the RBC for that asset.
| Reference # | Subject | Disposition |
|---|---|---|
| 2025-13-L | Proposes updates to the correlation between Life RBC risk factors used to calculate the RBC requirement. | Action temporarily deferred. |
The meeting agenda had listed this item as one to be considered for comment exposure. That did not happen. The chair was ready to expose a formal proposal to revise the RBC requirement, including PowerPoint slides prepared by the Academy. The chair emphasized that although exposure may occur, it was not with the expectation that adoption would immediately follow. It was anticipated that detailed discussions would take place. The exposure would provide a starting point for those discussions. Industry objected to the exposure. There were several reasons given for the objection, but probably the most notable was that the Working Group should wait until the newly formed Risk-Based Capital Model Governance Task Force crafts guiding principles to be followed. The Working Group chair responded that all of the RBC groups were told not to delay any of their current work while the new Task Force organizes. The back-and-forth discussion went on for some time before the chair decided to not do a formal exposure at this time. Instead, he asked that the Academy take a look at the operation of the new economic scenarios to soon be in place in relationship to the new suggested calculation. The Academy also was asked to provide a list of questions to be addressed by industry during a future exposure period.
Earlier in May, the Working Group had received a referral from SAPWG regarding the Asset Valuation Reserves (AVR) Equity and other Invested Asset Component of the Life RBC formula. During this meeting, the Working Group approved a response to that referral. The referral centered around the use of the terms “Affiliated – Certain Other” and “Affiliated – All Other.” The Working Group’s response included historical AVR background and asks SAPWG to assess whether those two terms should be retained for reporting and, if so, to provide consistent guidance for use.
Another referral from SAPWG was officially received. Because of the more granular reporting of collateral loans within the annual statement Schedule BA, SAPWG is asking that the Life RBC Working Group consider if specific AVR and RBC factors for the different collateral loan categories should be implemented. NAIC staff was directed to address the referral. SAPWG also sent this referral to the Capital Adequacy Task Force for consideration of applicability to the other RBC formulas.
Health Risk-Based Capital Working Group – June 20, 2025
This meeting was very short, but since the Working Group will not be meeting at the upcoming NAIC Summer National Meeting, it was needed to approve minutes to previous meetings to forward to the Capital Adequacy Working Group. In addition to minute approval, the group reviewed the 2024 Health RBC statistics. The statistics showed a significant increase in the number of health companies generating some kind of action level. The greatest increase occurred in the Company Action Level, both by companies originally generating that level and companies falling into that level by way of the trend test. The majority of companies had RBC ratios over 300%, with approximately 400 companies having a ratio greater than 1000%. The statistics will be posted to the Working Group’s webpage. As its last action of the meeting, the comment deadline for both of the H2 risk documents currently exposed was changed from June 20 to June 30.
Risk-Based Capital Investment Risk and Evaluation Working Group – June 23, 2025
The Working Group reviewed comments from several organizations on the following issue.
| Reference # | Subject | Disposition |
|---|---|---|
| 2025-12-IRE | RBC treatment alignment of three different types of bond funds in the Life RBC formula. | Exposed for comment through July 23, 2025. |
Comments received were almost unanimously in favor of the formula revisions, as well as expanding the revisions to the Property/Casualty and Health RBC formulas. The focus of the comments was the use of these types of funds by smaller companies to help diversify their investment portfolios. However, one comment letter questioned the amount of resources that would be needed for compliance for what would most likely be an immaterial difference in the RBC outcomes for the larger insurers. That same letter suggested the new treatment be an option and not mandated. Upon more discussion, NAIC staff pointed out optionality already exists for the life insurers since the funds reported in Schedule BA are not required to obtain an NAIC designation. Those funds without NAIC designation would not be eligible for the suggested new treatment. The Working Group went forward with the exposure, which is only for the Life RBC. Referrals are being sent to the other two RBC working groups for their consideration.
Capital Adequacy Task Force – June 30, 2025
The main purpose of an end-of-June meeting for this Task Force is to provide final approval of instructional and factor changes to the RBC formulas that have previously been adopted by the various working groups. Of course, other business is handled as well.
Items that needed final approval were:
| Reference # | Subject | Disposition |
|---|---|---|
| 2025-10-L | Instructional clarification on RBC credit for modified coinsurance (modco)/funds withheld (FWH) reinsurance. (See the Life RBC summary above.) | Adopted, effective for 2025 year-end. |
| 2025-09-P | Provides annual updates to the Underwriting Risk, line 1 factors. | Adopted, effective for 2025 year-end. |
| 2025-11-CR | Adds wildfire and severe convective storm perils to the catastrophe attestation. | Adopted, effective for 2025 year-end. |
| 2025-03-CA | Adjusts health lines underwriting risk factors in all formulas for investment income. | Adopted, effective for 2025 year-end. |
The Task Force adopted revisions to the process of proposing amendments to the RBC formulas. Changes were mostly for clarification of terms, with the one exception that some deadlines are now expressed in calendar days instead of business days. The Task Force then adopted its 2026 proposed charges, as well as those of the various RBC Working Groups, the Variable Annuities Capital and Reserve Subgroup, and the Generator of Economic Scenarios Subgroup.
A referral from the SAPWG was exposed for comment. The referral outlines changes being made to the accounting and reporting of collateral loans within Schedule BA and asks that the RBC groups consider future specific RBC factors for the different types of collateral loans. The referral was exposed for a 45-day comment period ending August 14, 2025. A comment letter from PineBridge Investments was received by the group. The comment letter addresses RBC factors being applied to Securities Valuation Office-designated bond funds. There is a substantial difference in the treatment of these funds between the Life RBC and the other RBC formulas. Currently, the life insurers are allowed to utilize RBC bond-like treatment for these funds, while the non-life insurers are not. PineBridge is asking for equal treatment for non-life insurers. Since the letter also was sent to the various RBC Working Groups, the Task Force will let the Working Groups address the letter first.
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