Investment RBC Updates

Collateralized loan obligations (CLOs) – RBC project still a work in progress; still on track for a 2026 adoption

The American Academy of Actuaries (Academy) recently released additional updates to their proposal to overhaul the life RBC C-1 bond factors for CLOs. Throughout various stages of the project, one theme has remained consistent – a substantial increase in capital charges for tranches below investment grade. The most recent updates introduced a new element that considers tranche thickness for tranches rated BBB- or lower. The Academy’s model divides the tranches into two separate categories: tranche thickness greater than 4% and tranche thickness less than or equal to 4% (the most recent proposal also considers a divide at 4.25%, see EXHIBIT 1). The divide was driven by the Academy’s analysis that showed a clear distinction between what can be considered thick versus thinner tranches by plotting out the debt tranches from over 2,600 CLO deals.

Additionally, tranche thickness is also meaningful when considering the different methodologies for the rating agencies and their ratings. For example, thinner tranches can still qualify for an IG rating from S&P or Fitch because their methodologies focus on the first dollar of loss, while Moody’s and KBRA methodologies will also factor in loss given default, therefore CLOs rated by them tend to have higher levels of BBB- thickness.

With the current analysis being done with a broadly syndicated loan CLO dataset, regulators will also need a solution for middle market CLOs (about 20% of the CLO universe), but there are a host of challenges. One issue is that middle market loans are unrated. Data denoting credit quality would be needed to produce a similar analysis for middle market CLOs. Also, because middle market CLOs have less transparency, the Academy would need additional data on tranche thickness and thus, adopting factors that apply to middle market CLOs but include tranche thickness may not be appropriate in their current form.

The Academy’s proposal is still exposed for comments until April 16. Also exposed for comment until April 17 are the structural changes to amend the RBC instructions and templates to incorporate a potential adoption. The structural changes need to be adopted in May to ensure a year-end 2026 effective date for any new capital factors, but the capital factors themselves can be adopted later in the year to allow discussion and further analysis to continue in the meantime.

In addition to discussions on the debt tranches, the next steps for regulators and Academy’s will also include new factors for CLO residuals and amendments to the portfolio adjustment (aka size factor).

The RBCMGTF requests industry feedback to improve RBC framework

In support of its RBC principles and its mission to enhance the RBC framework, the RBCMGTF¹ has requested feedback from the industry via a gap analysis to identify gaps and inconsistencies that exist to where an RBC change may be necessary. The goal of the project is to understand where there are material risks that are not adequately captured within the RBC framework, along with assessing where RBC treatment diverges between the Life, P&C and Health formulas.

Gaps and inconsistencies listed within the feedback that have links to investment portfolios include:

• Notable differences across the three RBC formulas (Life, P&C and Health)
  o Life RBC has risk category rankings for commercial mortgage loans, while the formulas for other lines do not.
  o Life RBC has a beta adjustment for common stock, while the other formulas do not.
  o Life RBC has more granularity for Schedule BA than the other formulas.
  o Lack of harmonization of RBC treatment for bond funds across insurer types.
• Significant differences exist at the state-level for Schedule BA limits and the allowance of look-through treatment for capital charge determination.
• Insufficient recognition of Schedule BA asset volatility or payment uncertainty, with limited transparency.
• RBC arbitrage – concerns of financial engineering of junk-grade assets to avoid RBC
• Insufficient recognition of illiquidity risk, interest rate risk and spread duration risk.

Regulators will have discussions to decide which topics are worthy of further analysis, with the next steps involving coordination with the Financial Condition (E) Committee and its underlying working groups (SAPWG², the Life / P&C / Health RBC working groups, etc.)

Collateral loans – Proposal to base RBC on look-through gets further revisions (2025-16-L MOD)

The LRBCWG³ has re-exposed its proposal for collateral loans, which would require a look-through approach by having the underlying collateral drive RBC.

Regulators have modified the proposal and introduced a few revisions, including:

• A 20% haircut in the capital factors for collateral loans backed by residual tranches (from 45%, down to 36%) and collateral loans backed by Schedule BA investments in JVs/LPs/LLCs (from 30%, down to 24%). The haircut is in response to the diversity in treatment at the state level (states have varying maximum LTV limits), with the 20% being a starting point to generate discussion on the topic.
• The interim provision that allows the capital factors for collateral loans backed by mortgages to mirror the Schedule BA mortgage guidance would be made permanent.
• A continuation of the current AVR treatment – the AVR factors are currently set at zero
• Asset concentration factor – the current life RBC framework doubles the charge for collateral loans. That practice would continue, subject to a 45% cap.

Separately, the ACLI has suggested its own proposal modifications that focuses on credit enhancement, with the capital charge potentially decreasing depending on the level of overcollateralization when the collateral is backed by JVs/LPs/LLCs or residual tranches.

The re-exposed proposal can receive comments until April 13^th. The plan is to have new factors in place and effective for 2027.

Investment subsidiaries – proposal to remove classification from RBC instructions (2026-05-CA)

Following recent accounting and reporting adoptions by SAPWG and BWG⁴ , regulators are proposing to remove the investment subsidiaries category from the RBC instructions for all business lines.

The concept of an investment subsidiary was technically eliminated from statutory accounting years ago. Under SSAP No. 97, SCAs⁵ that hold assets and do not conduct insurance business are allowed (i.e., owning an investment subsidiary is still permitted), but to avoid confusion, a December 2025 guidance amendment removed guidance from the annual statement instructions that referred to investment subsidiaries.

In an effort to simplify the guidance and limit RBC arbitrage opportunities, the CATF⁶ is proposing to remove the investment subsidiaries classification and is seeking feedback on the amended instructions. Comments are due until April 23.

Statutory Accounting Updates

Adopted Items

Interest Maintenance Reserve (IMR) – Proof of reinvestment (Ref #2025-23)

Regulators have adopted a new IMR template that will serve to verify that proceeds from bond sales are being recycled back into qualifying fixed income investments – this will be required for any insurer that wishes to add to, or increase, a net negative IMR balance.

To facilitate verification without specific investment tracking, a calculation template will be incorporated into proposed IMR reporting revisions that would 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 higher than the investments sold. Both tests would need to be passed by the insurer for it to increase a net negative IMR balance. Proof would only be required for net negative IMR balances and is not required 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 proof would be required for the general account. The separate account 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).

These new concepts will be included as part of the planned revisions to the issue paper and reporting requirements for IMR.

Nonadmittance of Long-Term Repos (Ref #2025-28)

Regulators have adopted guidance revisions 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 relates to 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.

Principles-based bond definition – Reporting clarifications (Ref #2025-29)

Regulators will implement several reporting changes related to the Principles-Based Bond Definition and its increased reporting requirements. Notable clarifications related to debt securities include:

• Payment Due at Maturity: Report the contractual payment due at the legal maturity date. This includes the final principal payment (including balloon payments) as well as interest to be paid at maturity. The amount reported at acquisition shall not be subsequently revised unless additional lots are purchased or if lots are sold. If there is no contractual amount to be paid at legal maturity, report zero.
• Origination Balloon Payment %: Include the percentage of contractual balloon payment due at legal maturity based on the original outstanding principal amount. Origination date information shall be used when available. For instruments purchased on the secondary market, for which origination date information is not available, the information available as of the acquisition date may be used using best efforts to obtain data. The balloon percentage shall not be adjusted after origination regardless of principal reduction or payments in advance of maturity that reduce the outstanding balloon. If there is no balloon payment, then update report with 0%.
• Schedule BA Maturity Date: The maturity date shall be reported for all investments on Schedule BA that have a contractual, stated maturity date. This is anticipated to include, but not be limited to, all investments captured as non-bond debt securities, surplus notes, capital notes, collateral loans, non-collateral loans, and investments in tax credits. Separately, regulators will need to decide what should be included for residual tranches.

Regarding Schedule BA funds, regulators will look to outline how/when to report SSAP No. 48 investments where the “underlying asset characteristic” is in question. For example, a question was recently presented to regulators whether a SSAP No. 48 entity holding 70% mortgage loans and 30% ABS could be allocated as holding “underlying characteristics of mortgage loans”. Because of the broader RBC impact on various investment vehicles (e.g., mortgage loan funds), these questions will need to be discussed in coordination with the RBC working groups.

Exposed for comment

Asset-liability matching (ALM) derivatives – New SSAP and issue paper exposed for comment (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 of 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.

Revisions have been drafted for the new ALM derivative accounting guidance (SSAP No. 109), which includes:

• Deferred assets/liabilities will only be recognized if the derivative terminates while part of a highly effective program, or if removed (rebalanced) from a highly effective program. If the program becomes ineffective, all derivative recognition from that point shall be recognized as immediate gains and losses and not be deferred.
• The proposed guidance permits amortization of deferred derivative gains and losses over a period not to exceed 10 years for all instances in which gains or losses are deferred.

Also, under consideration by NAIC staff:

• Schedule DB reporting – New, separate derivative line items could be added, or new reporting could be added to identify whether a derivative qualifies under the ALM derivative guidance.
• The proposed SSAP guidance permits admittance of all deferred losses recognized under the ALM derivative standard. Regulators will seek to determine if further disclosure (e.g., accumulated IMR, deferred derivatives, other “soft” assets) should occur to provide regulators with the aggregated amounts.

The draft for SSAP No. 109 and ALM Derivatives issue paper are exposed for comment until May 1.

Private placement commitments (Ref #2025-24)

Regulators previously exposed revisions to consolidate and clarify the disclosure requirements for commitments and contingent liabilities, as existing instructions for unfunded commitments were both unclear and incomplete. NAIC staff also highlighted a need for direction on RBC for contingencies and commitments (currently 1% for all lines of business), particularly as insurers increasingly enter into complex financial arrangements where their ability to exit or modify those arrangements is materially restricted without incurring significant costs and/or affecting future cash flows and liquidity. Therefore, NAIC staff will request input from the CATF and continue to work on a solution in the interim.

Residential mortgage loans – Statutory trusts issue paper (Ref #2025-13)

SAPWG has released its issue paper detailing the historical background behind the recently adopted statutory guidance covering qualifying statutory trusts. The new guidance allows qualifying trusts to be captured in SSAP No. 37—Mortgage Loans, with individual residential mortgage loans reported on Schedule B.

The public comment period on the exposure ends on May 1.

Funding agreement backed notes (FABNs) – New disclosures proposed (Ref #2026-01)

The Macroprudential Working Group has requested from SAPWG new reporting disclosures of FABNs and similar structures to allow for better regulator monitoring of a growing funding source within the insurance industry.

The disclosures would capture the total of all funding agreements that back SPV issuances, with reporting that divides the categories based on the type of agreement, whether the SPV-issued debt instruments are puttable, and if the terms of the debt agreement differ from the backing funding agreement.

The disclosure would also capture information on the maturity distribution of the funding agreements that back SPV issuances, including whether the funding agreement has a fixed or floating rate. Additionally, as the SPV could issue debt instruments backed by a non-U.S. currency, the recommendation proposes to capture info on currency denominations and whether the foreign currency exposure is hedged.

Lastly, the disclosures would detail the collateral pledged to the SPV by the insurer and include a glossary defining the various types of funding agreement backed structures.

Investment Designation Analysis Working Group (SVO) / Invested Assets Task Force

Investment Analysis Working Group outlines regulatory objectives and areas of focus

The Investment Analysis Working Group, a new regulator working group that will monitor evolving investment trends, has outlined its anticipated area of focus for its regulatory-only sessions over the coming months. Discussions are expected to focus on:

• Mortgage loan trends, analyzing insurers’ participation residential mortgage loan lending, underwriting approaches, commonly used loan structures, ongoing performance monitoring and credit assessment practices and whether existing reporting and capital frameworks are fit to purpose.
• Industry level trends on investment types that rely on internal valuation methodologies (i.e. Level 3 assets). This would include alternative assets (including privates), real estate and other complex credit / thinly traded instruments.
• Reviewing aggregated industry data related to newer bond reporting definitions and structured security classifications. This will tie into the expanded reporting requirements under the Principles-Based Bond Definition.

Exposed for comment

HR Ratings de Mexico, SA de CV – Name change

As of February 26, 2026, HR Ratings de Mexico, SA de CV, one of the SVO’s approved NRSROs, will now be referred to as HR Ratings LLC.

Referred to other working groups

Security Identifiers (IDs) – Combined fields in investment schedules

At the NAIC’s 2025 Fall National Meeting, the SVO put forth a recommendation that the annual and quarterly financial statement investment schedules be updated to combine investment security identifiers into a single reporting field, with the goal of improving security identification and integration across NAIC systems.

The SVO proposes adding two new fields (with the ability to add more data as needed):

• Security ID – which would include CUSIPs, CINS, ISINs, PPNs, along with S&P Global’s LoanX ID (LXID)
• Security ID Type – which would denote the type of security identifier being reported: C=CUSIP and CINS (including syndicated loans with a CUSIP), I=ISIN (including syndicated loans with an ISIN), P=PPN and L=LXID

The proposal also seeks to standardize situations where security IDs are not available or have yet to be assigned:

• 000000000 – Temporary ID used when acquired in the initial reporting year but the official ID is not yet received. This can only be used in the initial reporting year.
• 999999999 – ID used after the initial reporting year. Also denotes that the insurer does not expect to receive an NAIC recognized Security ID.

The SVO will submit referrals to the CATF and SAPWG seeking their feedback, along with a separate referral to BWG to request that these updates be incorporated into the schedule blanks.

¹ Risk-Based Capital Model Governance Task Force

² Statutory Accounting Principles Working Group

³ Life Risk-Based Capital Working Group

⁴ Blanks Working Group

⁵ Subsidiary, Controlled or Affiliated Companies

⁶ Capital Adequacy Task Force