Highlights
- Revised RBC principles adopted; will guide future direction for RBC projects
- New RBC factors proposed for CLOs, would shift capital burden to lower tranches
- IMR – Guidance revisions proposed for reinsurance collateral and reinvestment requirements
- Unfunded commitments – Proposed revisions would alter disclosures and required capital
- New derivative accounting rules to address asset-liability duration mismatches
- Revised accounting guidance adopted for residential mortgage loans held in trusts
Investment RBC Updates
Several RBC projects continue to be a work in progress –
- In support of its goal to expand governance over the RBC framework, the RBCMGTF1 adopted revised RBC principles, designed to further the principle of “Equal Capital for Equal Risk” and enhance regulators’ ability to identify weakly capitalized companies. The principles will also provide guidance for updating the RBC formulas to address current investment trends with a focus on more RBC precision in the area of asset risk. The RBCMGTF also hopes to be able to better identify emerging risks so that they can be addressed in a timelier manner. Regarding next steps, a process will be developed for analyzing retrospective and future RBC adjustments, with an emphasis on prioritization based on areas that present a material risk to the industry. A gap analysis is also planned, initially for life RBC, which will focus on (1) RBC granularity, in comparison to the annual statement instructions, (2) the interaction of the RBC framework with statutory accounting and reserves, (3) correcting any inconsistencies within the RBC instructions and (4) evaluating investment trends, to the degree to which a gap might pose a risk to regulators’ assessment of solvency.
- The American Academy of Actuaries (Academy) recently released another update to their proposal to overhaul the life RBC C-1 bond factors for CLOs. The purpose of the updated proposal was lay out their suggested baseline capital factors for the debt tranches and go through the modeling choices supporting the factors. The factors have been slightly altered from their September update, but still show very low risk for senior tranches but cliff risk for junior tranches, leading to a substantial increase in capital charge for tranches below investment grade. Other parts of the RBC formula must also be addressed (e.g., residual tranches, portfolio size adjustment) with a current plan to have the final life factors presented to regulators by April 2026, with adoption planned in June 2026. This would allow for any adopted changes to be effective for year-end 2026 reporting. Non-life regulators will take up the issue up once life regulators have settled on its path. If P&C or health RBC changes are warranted, no change is likely before 2027.
- Covariance for the life formula and the proposal to change the correlation amounts received new comment letters, which urged regulators to further analyze the impacts of a change to reduce any unintended effects to capital adequacy. This includes a request for broader discussion on the choice of data sets, the appropriate data period to analyze economic environments, whether more granular correlations should be considered, along with a reassessment of the 30% capital factor for equities, which was based on the current correlation framework. Regulators stressed that they would like the Academy to continue its work to move the proposal forward, taking into consideration issues raised by the industry.
- No explicit direction has been decided on the proposal to address the inconsistencies in treatment for various bond fund vehicles. More specifically, SEC-registered bond funds, which includes mutual funds, are subject to more punitive RBC treatment than other types of funds (e.g., ETFs). A potential solution currently being proposed would slot these funds into the preferred stock section of the life RBC formula, which would afford them regulatory treatment that is commensurate to the funds’ underlying holdings. Conversely, consideration will need to be given to the differences in how these fund vehicles function. When bond mutual fund investors sell during periods of rising rates to reduce losses, outflows driven by bond sales could negatively affect the fund’s performance for the remaining investors (which may be insurers less inclined to sell as cash flow investors). While the RBC working groups assess the materiality and potential impact of a proposed change in treatment, no further updates or action will take place for the time being.
- The LRBCWG2 exposed a proposal to reflect changes in its RBC formula and AVR reporting related to collateral loans. Recent accounting adoptions added granularity to the reporting of collateral loans, which helps regulators identify the types of collateral that supports their admittance per SSAP No. 21—Other Admitted Assets. The proposed RBC changes include:
- Collateral loans backed by mortgage loans – 3% charge (the same charge as unaffiliated Schedule BA mortgage loan funds)
- Collateral loans backed by investments in JVs/LPs/LLCs – 30% charge
- Collateral loans backed by residual tranches – 45% charge
- All other Schedule BA collateral loans – 6.8% charge (this is the existing charge for collateral loans; it equates to a charge between NAIC 3.C/BB- and 4.A/B+). For AVR, collateral loans have historically been excluded from AVR reporting, which was intentional. The working group will consider whether this should remain the same or should the AVR factors be set similar to other Schedule BA assets that are not categorized as stocks/preferred stocks/mortgage loans/fixed income etc. (i.e., they would have the same AVR treatment as residual tranches)
Statutory Accounting Updates
Asset-liability matching (ALM) derivatives – accounting guidance and issue paper to be drafted (Ref #2024-15)
Back in September, the ACLI released a proposal that would change the accounting for interest rate derivatives that are used for asset-liability matching purposes. These strategies protect an insurer from the negative effects on interest rate changes by reducing duration differences between assets and liabilities, but because they are macro hedges (and don’t have a clearly defined hedged item), they do not qualify as effective hedges under SSAP No. 86—Derivatives.
The ACLI proposal laid out two potential solutions to provide more favorable accounting for these strategies, one of which, the amortized cost method, was chosen by regulators as the preferred accounting method to move forward with.
The amortized cost method would allow a macro hedge to be designated as the “hedged item” for accounting purposes instead of a specific security or instrument. Therefore, the hedged item would be the duration difference between a designated portfolio of assets and liabilities, and the hedging instrument would be a specified derivative (or portfolio of derivatives) used to hedge that duration difference. The derivatives used, if deemed to be highly effective, would be carried at amortized cost, which would shield surplus from any fair value fluctuations while the hedge is in place.
There are other issues that would need to be addressed, such as the allowance of asymmetrical derivatives and therefore, SAPWG will release an issue paper and statutory accounting principles for exposure, which will be further discussed at meetings in 2026, with the goal of being effective for January 1, 2027.
Adopted Items
Residential mortgage loans held in statutory trusts (Ref #2025-13)
As regulators where working to improve guidance pertaining to investment subsidiaries, a separate matter relating to Delaware statutory trusts (DSTs) arose that affects how insurers hold residential mortgage loans (RMLs). Because of operational efficiencies and tax advantages, insurers will often hold their RMLs in wholly-owned DSTs, with the reporting being done on a look-through basis via Schedule B.
The accounting for mortgage loans lacked reporting guidance on the types of qualifying trusts that are allowed for SSAP No. 37—Mortgage Loans, therefore regulators have adopted new rules to ensure consistency in treatment going forward.
Revised guidance edits related to RMLs include:
- From the effective date, RMLs held within qualifying statutory mortgage trusts would be reported individually on Schedule B as if directly held by the insurer
- For a statutory trust to be considered qualifying:
- The trust must be domiciled in either a U.S. state or territory.
- The insurer must hold 100% beneficial ownership interest of the trust.
- Any single residential mortgage loan eligible under SSAP No. 37 can be held in a qualifying statutory trust, as long as each mortgage loan is legally separate and divisible. Therefore, second lien loans and RML participations would be allowed.
- All cash flows from mortgage loans must flow directly through the trust to the insurer.
- An insurer may pledge qualifying statutory trust assets as collateral; however, assets encumbered or pledged to a third party are nonadmitted.
- A new requirement to disclose a summary of assets and liabilities held within qualifying statutory trusts. Since such balances are to be reported as if directly held by the insurer, this disclosure is intended to provide regulators with a high-level overview of the balances held within the trust(s).
- SSAP No. 37 and SSAP No. 40 will permit real estate acquired through foreclosure to be held within an LLC that is wholly and directly owned by a qualifying statutory trust. The real estate must be owned by the LLC directly and wholly owned by either the insurer or a qualifying statutory trust.
- Transition guidance was added for statutory trusts held prior to the effective date that requires that insurers with qualifying statutory trusts transfer all trust activities, assets, and liabilities at book value and ensure each is properly reported in accordance with SSAP No. 37
The effective date of the revisions is January 1, 2027, with early adoption permitted.
Investment subsidiary concepts to be removed; corrects misconceptions about statutory treatment (Ref #2024-21)
In response to questions on the classification of investment subsidiaries on Schedule D-6-1 and the life RBC formula, regulators have adopted guidance changes to the treatment of subsidiaries.
The concept of an investment subsidiary was technically eliminated within statutory accounting years ago. Under SSAP No. 97, SCAs3 that hold assets and does not conduct insurance business are allowed (i.e., owning an investment subsidiary is still permitted), but there was still guidance in the annual statement instructions that referred to investment subsidiaries, presumably because of the different charge that RBC applies to such entities if they meet specific criteria.
To avoid confusion and lessen the diversity in treatment, guidance revisions will eliminate the investment subsidiary concept from the instructions, effective December 31, 2026. Upon adoption of the proposed blanks changes, SAPWG4 will also send a referral to the LRBCWG to also eliminate the corresponding RBC instructions that refer to investment subsidiaries. These edits will simplify the guidance and limit the ability to circumvent look-through RBC treatment.
Debt securities – Disclosure changes adopted to create consistent reporting requirements (Ref #2025-20)
Regulators have adopted reporting changes to the disclosure requirements for SSAP No. 26 and 43 bonds (aka Schedule D-1 bonds), and Schedule BA debt securities, which includes residuals and bonds that don’t qualify for the Schedule D (aka bonds reported under SSAP No. 21). The purpose of the proposal is to improve consistency within the reporting of debt holdings, which have undergone significant accounting revisions over the last few years.
The guidance amendments include:
- Expanded sales disclosures – the annual audit disclosure for proceeds on bond sales and realized gains / losses will be expanded to all debt securities, which would include short-term bonds and Schedule BA bonds. The revised disclosure will also include proceeds and realized gain / loss information from maturities.
- Bonds by maturity date – Schedule D, Part 1A captures summary information by maturity date bucket in the annual audit report, but it only currently includes Schedule D-1 and Schedule DA bonds. The disclosure will be expanded to also capture Schedule BA bonds.
- Impaired securities – the disclosure of impaired securities is being revised to be consistently included in the statutory financial statements for all debt securities. The revisions would eliminate the required quarterly disclosure requirement.
- Other-than-temporary impairment (OTTI) – In the annual statement, the disclosure for bifurcated OTTI has been expanded to include Schedule BA bonds as well as residual interests that follow the allowable earned yield measurement method.
- Residuals – Disclosures have been incorporated for residuals to be consistent with other invested asset disclosures (e.g. disclosures related to fair value and chosen measurement method)
A corresponding Blanks proposal has already been exposed for inclusion into the annual statement instructions and templates, with an expected effective date of December 31, 2026.
Private Securities – New disclosure and reporting requirements adopted (Ref #2025-19)
In response to an increase in private securities and private letter ratings, regulators have adopted new disclosure and reporting requirements to better identify the different types of private placement securities held by insurers.
Disclosures will be added to all investment SSAPs5 covering debt and equity securities which will identify if the investment is –
- Publicly registered,
- A private placement under Rule 144A, or
- A private placement security not under 144A (i.e., all non-publicly registered securities subject to the 1933 Securities Act, excluding Rule 144A). This would include securities under Regulation D, the Section 4(a)2 general exemption or any other exclusion from SEC registration for investments captured under the Securities Act of 1933.
- Not applicable (N/A) – this would presumably be for investments such as long-term certificates of deposit and bank loans that are not securities are likely not subject to the 1933 Securities Act
For all securities in scope, the insurer must aggregate each type by investment type, capturing the total book-adjusted carrying value (BACV), fair value (split by fair value level), the total amount of aggregate deferred interest and paid-in-kind interest, and the total BACV supported by private letter ratings.
There would also be new electronic columns in the corresponding investment schedules (Schedule DA, D, E2 and BA), which will result in Blanks revisions.
The disclosure revisions are effective December 31, 2026, for reporting in the year-end 2026 financials.
Exposed for comment
Interest Maintenance Reserve (IMR) – Proof of reinvestment (Ref #2025-23)
This agenda item has been created to discuss a fundamental concept in the admittance of negative IMR and the deferral and amortization of realized losses over time, which is that the proceeds from the sale of the fixed income instruments are being reinvested into new fixed income instruments with a higher yield.
In support of this, regulators are introducing a proof of reinvestment requirement that would help regulators verify that reinvestment into fixed income investments is taking place.
To facilitate verification without specific investment tracking, a calculation template has been developed to determine whether insurers are (1) sufficiently acquiring bonds or loans in comparison to their investable premium and sold fixed-income investments and (2) acquiring bonds or loans with a weighted average yield than the investments sold. The proposed guidance would require an insurer to pass both tests in order to have or increase a net negative IMR balance. Proof would only be required for net negative IMR balances and not a requirement when IMR balances are positive.
If an insurer fails the proof requirements, they’d only be permitted to recognize in IMR current year realized losses that offset current year realized gains. If there are additional realized losses that can’t be offset by current realized gains, those losses would be a direct hit to surplus and would not be recognized/deferred through IMR.
Additionally, proof would be required separately for the general and separate accounts (i.e., if the general account went net negative or increased the net negative balance, then a proof would be required for the general account. The separate account being in a net positive IMR position has no impact on general account proof calculations). This would support the concept of IMR recognition being fully dependent on the IMR position in that specific account – the general account or the separate account (regulators have indicated support for eliminating cross-account IMR recognition).
Regulators are exposing the proposed concepts and supporting templates for further consideration.
IMR impact to reinsurance collateral (Ref #2025-22)
Regulators are looking to establish clear guidance on how IMR derecognized by the cedent in a reinsurance transaction should be reflected in determining the amount of reinsurance collateral required from the assuming insurer to receive reinsurance credit. The need for clarification rose due to inconsistent application of existing guidance related to net positive IMR, which should result in an increase in the collateral requirement when derecognized. Additionally, there’s no current guidance on derecognized net negative IMR in SSAP No. 61—Life, Deposit-Type and Accident and Health Reinsurance.
Before moving forward within SSAP revisions, regulators must first decide if the treatment for derecognized IMR should be symmetrical (i.e. net positive IMR increases the collateral requirement and net negative IMR decreases the collateral requirement) or asymmetrical (net positive IMR increases the collateral requirement, but net negative IMR has no impact). A referral will also be sent to the Reinsurance Task to get their input on the best direction forward.
Private placement commitments (Ref #2025-24)
NAIC staff received an inquiry regarding whether private placement commitments should be disclosed in Note 14 – Liabilities, Contingencies and Assessments or Note 21 – Other Items. Regulators subsequently noticed that the existing instructions for the disclosure of unfunded commitments is both unclear and incomplete. For example, Note 14 appeared to only address commitments related to SCAs, guarantees, and guaranty fund assessments. Additionally, disclosure requirements in SSAP No. 1—Accounting Policies, Risks & Uncertainties, and Other Disclosures could function as a general catchall for private placement commitments but maps to Note 21C rather than to Note 14.
As insurers increasingly enter into complex financial arrangements, these commitments are often not recognized as liabilities on financial statements, even though these transactions can materially restrict an insurer’s ability to exit or modify them without incurring significant costs, while also affecting future cash flows, liquidity, and an insurer’s overall risk profile.
Therefore, regulators are proposing guidance revisions that –
- Adds a definition of commitments to SSAP No. 5—Liabilities, Contingencies and Impairments of Assets
- Clarifies that Note 14A(1) is intended to cover all material commitments. This would lead to an increase capital charges on unfunded commitments that sit off balance sheet.
- Adds a new summary disclosure that consolidates commitments and contingent commitments reported in the annual statement
- Adds a new “Commitment for Additional Investment” column, with instructions, to Schedule D-1-1 and Schedule D-1-2 (i.e., Schedule D bonds) and revise the instructions for the same column on Schedule BA for consistency
- Adds language to SSAP No. 21—Other Admitted Assets clarifying that private placement non-bond debt securities shall be initially recorded at cost on the funding date.
Modco /FWH Assets to be included in restricted asset disclosure (Ref #2025-27)
In support of recent reporting changes pertaining to funds withheld (FWH) and modified coinsurance (modco) arrangements, updates are being made to the restricted asset disclosures in SSAP No. 1—Accounting Policies, Risks & Uncertainties, and Other Disclosures to include modco assets, FWH assets, and collateral assets received and on the balance sheet, excluding collateral held under security lending and repurchase agreements.
Nonadmittance of Long-Term Repos (Ref #2025-28)
Regulators are proposing to revise the guidance in SSAP No. 103—Transfers and Servicing of Financial Assets and Extinguishments of Liabilities to allow long-term repurchase agreements to be admitted assets. Current guidance only allows short-term repos (365 days or less) to be admitted assets.
The revised guidance for repos would focus on the collateral requirements – if the collateral is equal to at least 95% of the fair value of the transferred/sold security, then the repo would be admitted. The length of the repo would not affect its admittance.
For reverse repos, nonadmittance would continue for any agreements with maturities longer than one year. If a reverse repo is in its last year to maturity, it could then be admitted.
Equity changes for Schedule BA investments (Ref #2025-26)
This agenda item is intended to address overall guidance for investments in scope of SSAP No. 48—Joint Ventures, Partnerships and Limited Liability Companies. Questions have been raised on the requirements for determining the BACV amount reported for a SSAP No. 48 Schedule BA investment.
Items being exposed for additional discussion:
- Timing of recognition of equity value increases and decreases – Should a true-up to the equity value be done when the audited financial statements become available? Also, should additional Schedule BA information be added, such as an electronic column(s), that identifies the date of the last audited financial statement, when that information was received, and the audited equity value at that time.
- Acquisition of SSAP No. 48 investments at a discount with negative goodwill – Negative goodwill is recognized when an SSAP No. 48 is acquired at a discount, and that goodwill is amortized into unrealized gains. NAIC staff are contemplating if any modification to that guidance and additional disclosure is needed.
- Application of Goodwill and Goodwill Disclosure – Should goodwill from these SSAP No. 48 acquisitions should be captured with the other goodwill disclosures?
- SSAP No. 48 Negative Investment Income and Impairment Assessment – Regulators are looking to understand what causes negative investment income. They’re also looking to understand what causes unrealized declines (losses) when the reported BACV is greater than acquisition cost.
- SSAP No. 48 Ownership Percentage and Related Party Codes – Feedback is requested on how related party codes are being used as many instances have been noted where the entity has a significant majority ownership (50% or higher) and the reported code is a “6 – No Related Party Relationship.”
- Schedule BA Column – “Date Originally Acquired” – Regulators are proposing blanks reporting revisions to clarify the “date originally acquired” on Part 1 to identify that it should not be updated to reflect additional interests / funding towards an existing investment. Revisions will be considered on how to address this on Schedule BA, Part 2.
Principles-based bond definition – Reporting clarifications (Ref #2025-29)
Regulators are requesting comments from the industry related to the reporting of debt securities in scope of the principles-based bond definition (PBBD), which will be effective for year-end reporting for the first time this year. Topics include:
- Payment Due at Maturity: Questions have been raised as to what should be reported as “payment due at maturity” on Schedule D-1-1 for issuer credit obligations (ICOs), and whether this reporting category should only be applicable for certain structures on the ABS schedule. For example, for self-liquidating ABS investments, there would be no explicit, separate payment at maturity. For most ICO structures, the amount due at maturity at acquisition is likely par value of the bond.
- Origination Balloon Payment %: Clarification was requested to allow use of “acquisition data” when origination data is not available. Although the initial implementation incorporated such transitional provisions, it has been noted that origination data may not be available for companies that acquire bonds on the secondary market (after origination). It was commented that getting the necessary documents for the bond could be challenging depending on the time between original acquisition and when it was acquired on the secondary market.
- Rated Notes or Rated Feeder Funds: Comments have been received to clarify the reporting location of debt securities from rated notes or rated feeder funds that qualify for bond treatment. Clarification is being requested on whether these could be reported as ICOs. Regulators have noted that reporting rated notes as ICOs isn’t appropriate since the securities are not backed by the general creditworthiness of an operating entity.
- Aggregate Deferred Interest: Clarification is being requested for bank loans reported on Schedule D-1-1 as ICOs. It’s been noted that it is common for bank loans to accumulate interest from underlying bank loans before paying the holder the interest. The interest accumulation within the bank loan may occur differently from the set payment dates to the holder.
- Schedule BA – Residuals Maturity Date: Clarification has been requested on whether residuals should report a maturity date on Schedule BA. A review of 2024 reporting identified several residuals that were reported without a maturity date. Although the residual absorbs losses first, and may not have contractual principal or interest, it is anticipated that the overall structure would have a maturity date. The instructions require reporting for investments that have a stated maturity date.
- Schedule BA – Investments in SSAP No. 48 Entities with Underlying Characteristics of Mortgage Loans: Questions have been received on whether this reporting category can include SSAP No. 48 structures that hold RMBS or CMBS if the reporting entity can look through the RMBS/CMBS structures to complete a detailed property analysis on the mortgages that comprise the securitization structures.
The comment period is open until February 13th, 2026.
SVO / VOSTF Updates
** NOTE ** The Valuation of Securities Task Force (VOSTF) will be known as the Invested Assets Task Force, effective January 1, 2026
Adopted Items
CLOs – New process to model NAIC Designations delayed again, now set for 2026
Back in 2022, in an effort to curb RBC arbitrage and assume more control over risk assessments, regulators announced plans to financially model all debt and residual tranches for broadly syndicated loan CLOs. This would remove the reliance on rating agencies to perform credit assessments and better align the capital charges of the individual tranches with the overall structure.
Additional work on the project still needs to be completed by NAIC staff, therefore an extension has been adopted to defer the year-end 2025 effective date for the new process to year-end 2026.
Private letter ratings – 30-day grace adopted for manual SVO submissions
The SVO has adopted new guidance that allows a 30-day grace period for annual private letter rating (PLR) update submissions. Insurers must submit updated PLR information annually (reports produced by the NRSROs) and have expressed the need for more time in submitting its manually filed PLRs. This would ensure that PLRs are not deactivated by the SVO, which often leads to reporting delays.