SVO / VOSTF Updates

Adopted Items

Financial Condition (E) Committee adopts major reorganization of its investment oversight framework

The Investment Framework Drafting Group of the Financial Condition (E) Committee will reorganize the Valuation of Securities Task Force (VOSTF), renaming it to the Invested Assets Task Force. The creation of the redesigned task force is a direct response to increases in holdings that are private or have complex structures, which have become more commonplace in recent years. The task force will be composed of commissioners and will oversee new working groups, including:

• The Investment Analysis Working Group, which will monitor the risks associated with all types of invested assets and analyze new or evolving investment products.
• The Securities Valuation Office (SVO) and Structured Securities Working Group, which will oversee securities filed with the SVO and structured securities modeled for NAIC Designations (e.g. MBS and CLOs).
• The Credit Rating Providers Working Group, which will work to identify potential improvements to the filing exempt (FE) process and review how credit ratings are used.

The renamed task force and new working groups are set to begin their work in 2026.

Other notable adoptions:

• Analytical substance of rationale reports: Regulators were looking to clarify what is expected from a private rating rationale report when provided to the SVO. Regulators have expressed concerns that some rationale reports did not possess sufficient analytical substance where an independent party could form their own opinion of the security’s investment risk. New guidance has been adopted that stipulates that all rationale reports shall be, at a minimum, as comprehensive in its analysis as a similarly rated public security. If the SVO determines that a private letter rating (PLR) rationale report does not satisfy minimum expectations, the SVO will notify the filer, detailing where the rationale report lacks sufficient substance. The SVO will subsequently reject the PLR if corrections aren’t made.
• Rationale report deadline: To provide better support for rationale report submissions moving forward and to prevent securities with no rationale reports from being de-activated and ineligible for the filing exemption (FE), the SVO has adopted guidance that allows a grace period of 90 days from the date of any annual or mid-year, rating affirmation, confirmation or change, for a new or updated rationale report to be provided to the SVO. Also, any de-activated securities could subsequently become FE eligible again once the SVO receive the new or updated rationale report.

Exposed for comment

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 following a brief exposure period for comments, the current effective date of year-end 2025 is set to be extended out to year-end 2026.

Private letter ratings – 30-day grace proposed for manual SVO submissions

The SVO is proposing allowing a 30-day grace period for annual 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 their manually filed PLRs. This would ensure that PLRs are not deactivated by the SVO, which often leads to reporting delays.

Security IDs – Reporting changes proposed to improve efficiencies

The SVO is proposing changes to improve the reporting of security identifiers, recommending that a common security identification field be added to the annual and quarterly financial statement investment schedules. The proposal would combine the CUSIP and ISIN fields into a single field, while adding a new smart code field to identify the security ID type. The codes would be listed as –

• C = CUSIP¹ and CINS² (including syndicated loans with an CUSIP),
• I = ISIN³ (including syndicated loans with an ISIN), and
• P = PPN⁴

The change would help the NAIC simplify data aggregation as it integrates new systems for data collection.

The SVO is also developing a new reporting field to identify when a security identifier has not been validated on a financial statement investment schedule submission. As of December 31, 2024, the SVO had identified 10,053 securities on the Schedule D (representing $55 billion in book-adjusted carrying value) that had missing or invalid security identifiers. Some instruments, such as bank loans, may have valid reasons for not having an identifier, but regulators would like more insight into this population of securities, which may lead to additional footnotes and reporting requirements.

Investment RBC Updates

Adopted Items

Life reinsurance – RBC clarifications adopted regarding restricted assets (2025-10-L)

The Statutory Accounting Principles Working Group (SAPWG) recently adopted new guidance that clarifies how assets held under modified coinsurance (Modco) or funds withheld (FWH) agreements shall be reported within various restricted asset disclosures in the annual statement.

In response to the SAPWG adoptions, The Life RBC Working Group (LRBCWG) has adopted guidance edits in its RBC instructions, specifying that an RBC reduction is not allowed for a ceding insurer if it executes a Modco or FWH reinsurance transaction involving assets that are simultaneously pledged for other purposes (e.g. used as collateral in a securities lending agreement, repo transactions or FHLB⁵ borrowings, etc.)

This is effective for year-end 2025 RBC reporting.

Asset concentration (life) – Guidance edits adopted to clarify treatment for Schedule BA debt instruments (2025-05-L)

Because of the Principles-Based Bond Definition (PBBD), changes are being adopted for the asset concentration assessment to specifically include bonds that move off the Schedule D and onto the Schedule BA. Additionally, the new guidance also clarifies that if a Schedule BA debt instrument is captured in an insurer’s ten largest exposures, the capital charge should be doubled, which is what is done for Schedule D-1 bonds. The previous guidance was somewhat ambiguous, leading to questions on whether an additional 15% charge should be added, which is how other Schedule BA assets are reported.

Guidance edits adopted for life RBC related to the PBBD and other overdue revisions (2024-24-L MOD)

Life regulators have adopted RBC instructional updates, primarily due to the PBBD, which became effective January 1^st. Clarifying edits include:

• Line 53.1 for Schedule BA assets within C-1o, will now include surplus notes and capital notes.
• Schedule BA Unaffiliated Residential Mortgages in Good Standing – there is a dedicated line item for affiliated residential mortgages (0.68% charge), but not one for unaffiliated residential mortgages, leading to them being reported as Unaffiliated Mortgages - Primarily Senior (1.75% charge) or Unaffiliated Mortgages – All Other (3% charge). No edit has been proposed for this, as the LRBCWG plans to dedicate a separate proposal to this in the future.
• Schedule BA Farm Mortgages 90 Days Overdue, Not in Process of Foreclosure (11% charge) and In Process of Foreclosure (13% charge) – edits will ensure these mortgage loans flow into life formula correctly.
• Asset concentration factor – guidance edit would exclude cash equivalents from being captured the top 10 exposures.

All changes are effective for 2025 year-end RBC filings.

Deferred Items

The American Academy of Actuaries suggests changes to covariance for life RBC formula

In support of an effectiveness review of life RBC, the American Academy of Actuaries (Academy) recently released a proposal that reconfigures covariance for the life RBC formula. The proposal doesn’t change the structure of how existing risk factors are defined but does suggest new correlation amounts for the risk pairings (EXHIBIT 1). The potential after-covariance impact for life insurers will vary for the various risk components and will depend on company specifics related to portfolio concentration / diversification.

The project is still under regulatory review, with feedback comments yet to be requested from the broader industry. Regulators also would like the Academy to assess whether changes to the Generator of Economic Scenarios (GOES) would impact the current proposal.

Capital notes and other non-Schedule D debt instruments – P&C and health insurers to assess materiality before considering any RBC changes

In response to a referral from SAPWG that focuses on the inequities in RBC treatment between the Life and P&C / health formulas, the Property & Casualty RBC Working Group (PCRBCWG) and Health RBC Working Group (HRBCWG) will perform an impact analysis on capital notes and other Schedule BA debt instruments, assessing the material effects on RBC before considering any potential changes. This project will be picked up in 2026, as regulators will wait for the 2025 annual filings before determining its next steps.

Exposed for comment

Life RBC proposal would reduce capital charges on bond mutual funds (2025-12-IRE)

Earlier this year, the American Council of Life Insurers (ACLI) released a report that highlighted the history of RBC treatment for fund holdings and detailed the inconsistencies in treatment for various fund vehicles. In response to the report, NAIC staff has released a proposal that would improve the RBC treatment of SEC-registered bond funds, which includes mutual funds.

The proposal would slot these funds into the preferred stock section, which would afford them regulatory treatment that is commensurate to the funds’ underlying holdings. Smaller insurers have been lobbying for this change for years, feeling that this would expand the universe of bond strategies available to them, particularly when certain vehicles like mutual funds received more punitive regulatory treatment versus ETFs.

The proposal also addresses asset concentration, incorporating guidance edits that clarifies that bond mutual funds should be included in asset concentration and not common stock concentration, while also clarifying which funds should be considered diversified (and be excluded from concentration) and which funds require look-through for concentration assessments.

Collateral loans – Reporting changes lead to reassessment of RBC

In May 2025, The Blanks Working Group (BWG) adopted reporting changes (2024-19BWG) that adds granularity to the reporting of collateral loans, which will help regulators identify the types of collateral that supports the admittance of collateral loans in scope of SSAP No. 21—Other Admitted Assets. It had been noted by regulators that some insurers are using collateral loans as a way to access certain types of exposures that would normally have higher capital charges, gaining an RBC benefit versus holding the underlying collateral directly. In conjunction with the reporting changes, the LRBCWG has agreed to take a deeper look at collateral loan RBC to assess capital arbitrage and whether RBC changes are warranted. 

Statutory Accounting Updates

IMR⁶ project updates (Ref #2023-14, Ref #2025-03)

As part of a long-term project to address IMR-related topics, an expanded definition of IMR was previously proposed for entry into SSAP No. 7—Asset Valuation and Interest Maintenance Reserve.

This new definition⁷ will be included in the IMR Issue Paper and forthcoming revisions to SSAP No. 7. This will also close out discussion for agenda item 2025-03, with any further updates or changes to be part of agenda item 2023-14, which will serve as the source for the broader IMR project.

Additionally, for agenda item 2023-14, hypothetical IMR, a concept involving reinsurance transactions where the ceding insurer cedes IMR to a reinsurer for amounts that have not yet been created through actual bond sales, will be removed as an IMR concept. This official change will be codified into the IMR guidance once the project has been finalized.

Adopted Items

Negative IMR – Accounting relief extended for another year (Ref #2022-19: INT 23-01)

Back in 2023, regulators adopted guidance revisions for IMR to provide life insurers relief from the negative accounting impacts of rising interest rates. The IMR guidance, which allows net negative IMR admittance of up to 10% of adjusted capital and surplus, is set to expire on December 31, 2025, and was adopted as a short-term, non-permanent solution. With its expiration due in a few months, regulators have voted to extend the effective date for negative IMR to December 31, 2026 and keep the current rules as is until a permanent solution is decided on.

Reinsurance – Reporting of Funds Withheld and Modco Assets (Ref #2024-07, 2025‐05BWG)

Regulators have adopted a reinsurance-related reporting change that will help to better assist in identifying assets that are subject to Modco or FWH arrangements. The new schedule (Schedule S, Part 8) will require aggregated investment data on assets that supports ceded or assumed liabilities, for insurers that report life and fraternal financials. Regulators have also added a clarification on applicability, specifying that the schedule is only required on reinsurance deals where investment risk is being transferred. This will help to lessen the reporting burden on health insurers with reinsurance agreements that doesn’t transfer investment risk.

Reinsurance relationships and affiliated / related party assets (Ref #2025-05)

Regulators have adopted guidance changes to expand the restricted asset disclosure to identify Modco/FWH assets where the asset is a related party or affiliated investment to the reinsurer. This is in response to increases in offshore reinsurance relationships involving life and annuity liabilities. Regulators recently highlighted a situation where a reinsurer had investment advisory responsibilities over the assets withheld by the ceding insurer and many of the assets were later identified to be overly complex and affiliated to the reinsurer, which led to valuation issues when the ceding insurer began to have difficulties.

This new guidance will also require full disclosure in all annual and quarterly financial statements, which is a change from existing guidance where quarterly disclosure is only typically required if there have been significant changes from the annual statement.

The effective date for the new disclosures is year-end 2025.

Exposed for comment

Residential mortgage loans held in statutory trusts (Ref #2025-13)

As regulators were 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 will look to establish new rules to ensure consistency in treatment going forward.

Proposed guidance edits related to RMLs include:

• For a statutory mortgage 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).

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, NAIC staff is proposing 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, SCAs⁸ that hold assets and do 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 reduce the diversity in treatment, NAIC staff is recommending revisions to eliminate the investment subsidiary concept from the instructions, effective December 31, 2026. Upon adoption of the proposed blanks changes, NAIC staff recommends 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.

Private Securities – New disclosure and reporting requirements proposed (Ref #2025-19)

In response to an increase in private securities and private letter ratings, regulators are proposing 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 SSAPs⁹ covering debt and equity securities, which will identify:

• if the security is not subject to SEC security registration, and
• if the security is a private placement under Rule 144A (collectively capturing all exclusions for resales that do not involve the issuer, underwriter or dealer), Regulation D, or as a general exemption pursuant to Section 4(a)2 of the Securities Act of 1933

For all securities in scope, the insurer must aggregate each type by investment schedule, capturing the total BACV, fair value, 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 forthcoming Blanks revisions.

These disclosure requirements are proposed to be effective December 31, 2026, for reporting in the year-end 2026 financials.

Debt securities – Disclosure changes proposed to create consistent reporting requirements (Ref #2025-20)

Regulators are proposing 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 proposed edits 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 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)

Corresponding Blanks proposals will also be proposed for inclusion in the annual statement instructions and templates, with an expected effective date of December 31, 2026.

¹ Committee on Uniform Securities Identification Procedures

² CUSIP International Numbering System

³ International Securities Identification Number

⁴ Private Placement Number

⁵ Federal Home Loan Bank

⁶ Interest Maintenance Reserve

⁷ New IMR Definition: IMR is 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).

IMR intends to defer and amortize the recognition of realized gains or losses where investment activity essentially unlock unrealized gains/losses for either assets or liabilities. IMR is not intended to defer realized gains and losses compelled by liquidity pressures that fund cash outflows (e.g., such as excess withdrawals and collateral calls).

⁸ Subsidiary, Controlled or Affiliated Companies

⁹ Statements of Statutory Accounting Principles

Disclaimers

This document is confidential and intended only for the person or entity to which it has been provided. Reliance upon information in this material is at the sole discretion of the reader. The material was prepared without regard to specific objectives, financial situation or needs of any particular recipient. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are those of J.P. Morgan Asset Management, unless otherwise stated, as of the date of issuance. They are considered to be reliable at the time of production, but no warranty as to the accuracy and reliability or completeness in respect of any error or omission is accepted and may be subject to change without reference or notification to you.

Investment involves risks. Any investment decision should be based solely on the basis of any relevant offering documents such as the prospectus, annual report, semi-annual report, private placement or offering memorandum. For further information, any questions and for copies of the offering material you can contact your usual J.P. Morgan Asset Management representative. Both past performance and yields are not reliable indicators of current and future results. There is no guarantee that any forecast will come to pass. Any reproduction, retransmission, dissemination or other unauthorized use of this document or the information contained herein by any person or entity without the express prior written consent of J.P. Morgan Asset Management is strictly prohibited.

J.P. Morgan Asset Management or any of its affiliates and employees may hold positions or act as a market maker in the financial instruments of any issuer discussed herein or act as the underwriter, placement agent or lender to such issuer. The investments and strategies discussed herein may not be appropriate for all investors and may not be authorized or its offering may be restricted in your jurisdiction, it is the responsibility of every reader to satisfy himself as to the full observance of the laws and regulations of the relevant jurisdictions. Prior to any application investors are advised to take all necessary legal, regulatory and tax advice on the consequences of an investment in the products.

Securities products, if presented in the U.S., are offered by J.P. Morgan Institutional Investments, Inc., member of FINRA.

J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. Including but not limited to J.P. Morgan Investment Management, Inc.

If you are a person with a disability and need additional support in viewing the material, please call us at 1-800-343-1113 for assistance.

Copyright 2025 JPMorgan Chase & Co. All rights reserved.

4526aa24-7f6d-11f0-b7ac-d382869d47e5