NAIC 2026 Summer National Meeting

Investment RBC Updates

Regulators map out RBC priority projects

The RBC Model Governance Task Force (RBCMGTF) is focused on identifying five to seven material RBC gaps or modernization projects for 2027-2028. The goal is to prioritize solvency issues that could affect the integrity, responsiveness, or appropriate use of the RBC framework. The plan also contemplates a commissioner-level financial policy steering committee that would maintain a rolling two-year agenda for major RBC initiatives and related solvency matters that meet the task force’s standard.

Several investment-related areas have been identified as potential priorities:

• Residential Mortgage Loan (RML) RBC – Regulators are questioning whether the current 68 bps Life RBC charge remains appropriate. The charge is flat and does not differentiate by property type, borrower characteristics, loan structure, or other risk metrics, even as insurer holdings of residential mortgage loans have grown materially in recent years.
• RMBS and CMBS RBC – The current intrinsic price methodology can create different capital charges based on tenor. Under the NAIC’s modeling framework, the discounting effect can cause longer-tenor securities to generate lower intrinsic prices, which may result in less favorable NAIC designations and higher capital charges. Regulators may also consider whether corporate C-1 bond factors remain appropriate for Life insurer holdings of RMBS and CMBS, given the structural differences between securitized products and traditional corporate bonds.
• Life RBC covariance and portfolio adjustment factor – The Life RBC formula relies on simplified covariance assumptions, often treating risks as either fully correlated (100% correlated) or uncorrelated (0% correlated). This binary approach may not adequately reflect how investment risks interact in practice and may fail to properly recognize diversification benefits or concentration risks across different asset classes.
• Schedule BA bond and mortgage RBC – Schedule D-1 bonds use a 20-factor RBC C-1 system, while Schedule BA debt instruments remain under the old six-factor system. In addition, applying bond or mortgage RBC factors to Schedule BA vehicles may not be appropriate in all cases because the valuation basis can differ meaningfully from directly held bonds or mortgages—for example, amortized cost treatment for direct holdings versus fair value or equity-method accounting for certain Schedule BA structures.

Additionally, the Financial Condition (E) Committee has directed the Life RBC Working Group (LRBCWG) to develop two potentially significant capital changes aimed at addressing risks associated with offshore reinsurance.

First, regulators have requested a new reinsurance recapture RBC factor applicable to ceded reserves and modified coinsurance balances associated with reinsurance in non-reciprocal jurisdictions. The rationale is that if a reinsurer were unable to perform and ceded business had to be recaptured, the ceding insurer could face significant operational challenges and capital strain as liabilities return to its balance sheet. This would create a more pronounced distinction between reciprocal jurisdictions, such as Bermuda, which the NAIC views favorably, and non-reciprocal jurisdictions such as the Cayman Islands. As a result, the Cayman Islands' pursuit of Qualified Jurisdiction status could become increasingly important as insurers evaluate competing reinsurance domiciles. 

The Committee has also directed LRBCWG to strengthen the treatment of reinsurance counterparty risk by incorporating greater sensitivity to reinsurer financial strength ratings, similar to the approach used in the P&C RBC framework. 

Further discussion on these topics is expected at the Fall National Meeting in November.

Adopted Items

Collateralized loan obligations (CLOs) – New Life RBC factors adopted (2026-12- IRE MOD)

The NAIC adopted new life RBC factors for CLOs to address perceived capital arbitrage concerns and better align capital requirements with tranche-level risk. The revised framework applies to both broadly syndicated loan (BSL) and middle-market CLOs, as well as related securitizations such as CBOs and CDOs.

Under the revised framework, capital charges have declined for tranches rated A and above, while increasing for A- and lower-rated tranches. The largest increases are concentrated in below-investment-grade tranches (EXHIBIT 1), reinforcing regulatory incentives for insurers to favor more senior portions of the capital structure.

The framework also introduces tranche thickness as an explicit risk consideration. For tranches rated BBB- and below, an 11% surcharge applies when tranche thickness is less than 4%. Regulators view thinner tranches as more vulnerable to loss and therefore warrant additional capital support.

Other notable changes include a portfolio adjustment factor (size factor) of 1.0 for CLOs, resulting in no capital benefit or penalty based on the number of holdings. The RBC charge for CLO residual interests remains unchanged at 45%, although regulators have indicated that residual treatment may be revisited in the future.

The new factors are effective for 2026 year-end reporting.

Collateral Loans – RBC undergoes significant overhaul (2026-09-L MOD, 2025-16-L MOD)

Life regulators have adopted new RBC factors for collateral loans that apply a look-through approach, with capital requirements determined by the underlying collateral. Key provisions include:

• Mortgage-backed collateral loans will receive capital treatment consistent with Schedule BA mortgage guidance. Insurers must maintain loan-level mortgage data (similar to Schedule B reporting). Absent sufficient transparency, the collateral loan will remain subject to the existing 6.8% RBC charge.
• Collateral loans backed by Schedule BA investments—including JVs, LPs, LLCs, and residual tranches—will be evaluated using loan-to-value and overcollateralization tests (see EXHIBIT 2). Loans with stronger collateral protection and greater excess collateral will qualify for reduced capital charges.
• All other collateral loans backed by Schedule BA assets will continue to receive the existing 6.8% RBC charge, which is broadly equivalent to a capital requirement between NAIC 3.C (BB-) and NAIC 4.A (B+).

The adopted changes are effective for year-end 2027.

RBC clarified for Schedule BA RMLs (2026-02-L)

The LRBCWG adopted a guidance revision clarifying the RBC treatment of unaffiliated Schedule BA RMLs. The revision aligns unaffiliated Schedule BA RMLs with the existing look-through treatment for affiliated Schedule BA RMLs, allowing qualifying investments to receive the same 0.68% RBC charge as directly held residential mortgages.

Statutory Accounting Updates

Interest Maintenance Reserve (IMR) – Permanent IMR framework coming into focus (Ref #2023-14)

Regulators are working to finalize the guidance and framework related to IMR, which featured one of the most significant accounting changes for life insurers in recent years – negative IMR. In response to a spike in rates in 2023 that created large realized losses, regulators adopted temporary guidance allowing for negative IMR, capped at 10% of adjusted surplus.

In an effort to create a more permanent framework for IMR with sufficient safeguards, SAPWG is looking to address a few relevant issues:

• The definition of IMR, emphasizing that while IMR does not meet the definition of an asset or liability, it is required to be recognized as a statutory asset or liability as a valuation adjustment.
• The guidance includes examples of known liquidity sales, where IMR inclusion is still allowed even though the proceeds were not reinvested in qualifying assets. Examples include, but are not limited to, sales used to fund surrenders or withdrawals, derivative collateral calls, or other business entity expenses.
• The proof of reinvestment guidance has been clarified, reorganized, and expanded to include an additional exception when an insurer has assumed net negative IMR losses from a reinsurance transaction; such IMR losses will be permitted to increase net negative IMR even if the reporting entity does not complete or fails the tests within the proof-of-reinvestment framework.
• Edits related to reinsurance have been included that direct the offset to an IMR adjustment to “Aggregate Write-ins for Deductions.” This is currently used for FWH agreements but is not consistently used for modco agreements.
• General and separate account allocation – the insurer would have discretion on how it would allocate negative IMR across the general and separate accounts, allowing for more flexibility.
• Derivative gains and losses can be reflected in IMR only when offsetting gains or losses from the hedged item are also reflected in IMR.

Regulators are also looking for feedback on two key issues –

• 10% Negative IMR Admittance Cap – SAPWG is assessing whether the existing 10% cap on negative IMR should be retained or eliminated. Some insurers have argued that negative IMR is fundamentally a valuation adjustment that aligns asset and liability measurement rather than a reflection of economic loss. They contend that the proposed safeguards (proof-of-reinvestment requirements, cash flow testing, principles-based reserving, and enhanced disclosures) provide sufficient regulatory protection to support full admittance with no cap. The NAIC acknowledges these arguments but remains concerned about the complexity of the new safeguards, insurers’ ability to comply with the reporting requirements, and the lack of visibility into certain actuarial validations. As a result, NAIC staff have suggested maintaining or phasing in the existing admittance limitation until regulators can assess compliance with the new framework.
• Effective Date – While initially contemplating a January 1, 2027 effective date, NAIC staff is now proposing a 2028 implementation, which would allow regulators and insurers additional time to test and validate the new requirements.

The comment period for the revisions ends October 2^nd.

Adopted Items

Negative IMR excluded from life reinsurance collateral calculations (Ref #2025-22)

Regulators have adopted guidance resolving how negative IMR affects reinsurance collateral requirements. Under existing reinsurance credit rules, positive IMR is added to reserves when determining required collateral because it represents deferred gains that will be recognized over time. However, the treatment of negative IMR, which reflects deferred losses from prior asset sales, was not explicitly addressed when the guidance was originally crafted.

After consultation with the Reinsurance Task Force, regulators have adopted an asymmetric approach whereby:

• Positive IMR increases required collateral
• Negative IMR does not reduce required collateral

The decision is particularly relevant for life insurers engaged in offshore asset-intensive reinsurance transactions, where the amount of required collateral can be substantial. This ensures collateral levels remain tied to the underlying reserve obligation and are not overly impacted by accounting mechanics.

RMLs – Statutory trusts issue paper (Ref #2025-13)

SAPWG has adopted Issue Paper No. 172 Qualifying Statutory Trusts, which details the historical background behind the recently adopted statutory guidance covering statutory trusts. The new guidance allows qualifying trusts to be captured in SSAP No. 37—Mortgage Loans, with individual RMLs reported on Schedule B.

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

SAPWG adopted new SSAP No. 52 disclosures for FABNs and other funding agreement-backed SPV structures to improve regulatory monitoring of this growing funding source. Insurers will be required to report funding agreements by structure type and identify puttable features and mismatches between funding agreement and SPV terms. Insurers must also disclose maturity profiles, interest rate characteristics, foreign currency exposures and hedging, and collateral pledged to support the structures. The revisions also add a glossary defining the various types of funding agreement-backed structures.

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, revisions have been 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 held on the balance sheet, excluding collateral held under securities lending and repurchase agreements. Action pertaining to whether the restricted asset codes should be removed from or retained in the investment schedules is being deferred to allow for further discussion of their usefulness.

Securities Lending – Restricted Asset Reporting (Ref #2026-05)

Regulators have adopted clarifications on what should be reported as a restricted asset for securities lending transactions.

The revisions clarify that the restricted asset reported for a securities lending transaction is the security lent by the reporting entity that remains on the insurer's balance sheet, rather than the collateral received. If collateral is received and can be sold or repledged, the collateral should be separately reported as an admitted asset with a corresponding liability to return the collateral. This treatment does not change the reporting of the lent security as the restricted asset.

To implement this clarification, SAPWG will sponsor a Blanks proposal to revise Note 5L and related annual statement instructions to eliminate inconsistent reporting and potential double-counting of securities lending collateral. SAPWG will also send a referral to the Capital Adequacy Task Force (CATF) to clarify references within the RBC instructions.

Exposed for comment

ICOLI – Regulatory treatment under review (Ref #2026-08)

SAPWG is launching a regulatory review of Insurance Company Owned Life Insurance (ICOLI) to determine whether it should continue receiving favorable statutory reporting and RBC treatment when policy cash values are invested in risk assets, including private credit and other Schedule BA-type investments.

Under SSAP No. 21, ICOLI cash surrender value is reported as an “other-than-invested” asset. As a result, life insurers do not receive an RBC charge, while P&C and health entities are subject to a 5% charge.

Given the growth in ICOLI balances and the marketing of these policies as a capital-efficient way to hold alternative assets, regulators are assessing whether the current treatment remains appropriate or should be revised.

The proposal is exposed until October 2^nd and a referral is being sent to the CATF to assess the RBC charge.

Structured securities – Embedded ALM Risk (Ref #2026-10)

As structured securities continue to receive regulatory scrutiny, regulators have identified a growing subset of multi-collateral structured securities that may contain significant embedded asset-liability management (ALM) risk. Unlike traditional ABS transactions that are backed by a homogeneous asset class (e.g., RMBS = residential mortgage loans, CLOs = corporate loans), these structures can be supported by a diverse mix of underlying assets. In certain cases, the debt issued by the structure has a substantially longer duration than the underlying assets, requiring proceeds from maturing assets to be reinvested over long periods in order to meet contractual obligations.

Regulators are concerned that these structures can create the appearance of long-duration assets while effectively moving ALM risk from the insurer's balance sheet into the investment vehicle itself. As a result, proposed revisions to SSAP No. 26 would require that insurers assess whether self-liquidating financial ABS contain significant embedded ALM risk, defined as situations in which the ability to make contractual payments could be affected by changes in reinvestment rates or investment spreads. Securities with significant levels of embedded ALM risk would not qualify as bonds under the Principles-Based Bond Definition (PBBD).

RMLs – Clearer definitional guidance sought as asset class grows (Ref #2026-11)

In response to a referral from the Investment Analysis Working Group, SAPWG is evaluating whether SSAP No. 37 should be amended to provide a clearer statutory definition of an RML and improve consistency in Schedule B reporting. The concern is that current guidance relies on informal references to "one-to-four family properties" without an explicit SSAP definition, resulting in inconsistent classification across insurers. Some loans currently reported as residential may have economic risk characteristics more akin to commercial real estate lending, including large multifamily properties, development-stage projects, transitional assets, and mixed-use properties.

A key driver of the project is the growth in RML allocations and the capital treatment difference between residential and commercial mortgages. Residential mortgage loans receive significantly lower RBC charges, creating concern that certain higher-risk real estate exposures may be receiving preferential capital treatment because they are being classified as residential. Regulators are therefore examining whether classification should be tied more closely to the underlying risk profile rather than solely to the property’s physical characteristics.

NAIC staff is recommending using existing federal regulatory definitions as the starting point for defining "one-to-four family property" and "multifamily property" within SSAP No. 37. However, SAPWG is seeking comments on several policy questions, including:

• Whether multifamily properties should continue to qualify as residential mortgages or instead be treated as commercial mortgages.
• How mixed-use properties containing both residential and commercial space should be classified.
• Whether loan-size limits should apply to residential mortgages.
• How to treat specialized property types such as ADUs, non-owner-occupied rental homes, construction loans, bridge loans, fix-and-flip loans, HELOCs, and transitional properties.
• Whether development loans secured by multiple residential properties should be prohibited from being reported as a single residential mortgage loan.

The proposal also raises the possibility of significantly enhanced Schedule B reporting. NAIC staff is considering whether insurers should disclose additional risk attributes such as loan-to-value (LTV) ratios, lien position (first-lien versus subordinate), borrower credit quality, owner-occupancy status, and other underwriting characteristics. This reflects concerns that the current RBC framework does not adequately differentiate between higher-risk and lower-risk residential mortgages, meaning a prime first-lien mortgage and a more speculative residential loan may receive similar capital treatment.

Finally, SAPWG is evaluating whether the current practice of reporting every residential mortgage individually on Schedule B remains practical. Residential mortgage holdings have increased substantially in recent years, driven in part by their favorable RBC treatment and the expansion of residential mortgage investing through statutory trust structures. As a result, regulators are considering whether some level of aggregation may be appropriate, provided transparency and risk assessment capabilities are not compromised.

ALM derivatives – revised SSAP and issue paper exposed; 2028 effective date proposed (Ref #2024-15)

After receiving industry feedback, SAPWG has continued refining its ALM derivatives proposal, which is intended to provide more appropriate statutory accounting treatment for interest-rate hedging strategies that reduce duration mismatches between assets and liabilities. Because these strategies are often portfolio-level (macro) hedges rather than hedges of specifically identified assets or liabilities, they generally do not qualify for hedge accounting under SSAP No. 86.

The proposal has evolved into a standalone accounting framework through the proposed SSAP No. 109 – Asset Liability Management (ALM) Derivatives. The draft guidance establishes a dedicated accounting model for qualifying ALM hedge programs and includes detailed requirements related to hedge documentation, effectiveness testing, deferred gains/losses and commissioner approval. The proposal would also permit dynamic macro-hedging strategies that are common among life insurers but are not currently accommodated under existing statutory hedge accounting rules.

Recent discussions have shifted from the overall concept to implementation and transition issues as the proposal moves toward a final framework. SAPWG and industry have largely aligned on a surplus-neutral transition approach¹ for existing derivative positions and continue to support a deferral mechanism that amortizes qualifying hedge gains and losses over time to better reflect the economics of the underlying liability exposure. The proposal would also introduce new reporting requirements for ALM derivative programs, likely requiring future revisions to Schedule DB and related annual statement instructions. In addition, the project has become increasingly intertwined with the broader IMR modernization effort, as the proposed IMR revisions significantly narrow the circumstances in which derivative gains and losses qualify for IMR treatment, making the ALM derivatives framework the primary vehicle for recognizing portfolio-level duration management hedges.

Looking ahead, SAPWG has referred the project to the Life Actuarial Task Force (LATF) for further review, including a potential 2027 pilot program to evaluate the proposed hedge-effectiveness testing methodologies. The objective is to determine whether additional guardrails or greater standardization are needed before final guidance is adopted.

While the original proposal contemplated a January 1, 2026 effective date, that timeline is no longer achievable. Given the ongoing coordination with the IMR project, related reporting changes, and LATF’s review, regulators are now considering a January 1, 2028 effective date.

Replication Synthetic Asset Transactions (RSATs) – Regulators initiate a guidance review (Ref #2026-09)

In response to an uptick in RSAT filings, regulators are considering revisions to the accounting and reporting of RSATs amid questions about appropriate usage parameters, and concerns that some structures may be producing unintended RBC benefits or inconsistent accounting treatment.

NAIC staff has identified several potential issues:

• Existing SSAP No. 86 provides only limited guidance on RSATs.
• Current rules allow virtually any asset or portfolio to serve as the "cash component" supporting a replication transaction.
• Some structures can produce lower overall RBC requirements than direct ownership of the replicated exposure.
• Reporting practices vary, making it difficult to match RSATs with the underlying cash components.
• The meaning of a "permissible investment" is not clearly defined in current guidance.

Key proposed changes:

• Limit RSAT cash components to investment-grade U.S. government, municipal and corporate bonds
• Limit permissible investments to investment-grade issuer-credit obligations, eliminating the ability to use RSATs to synthetically create exposure to below-investment-grade bonds or non-bond structures
• Clarify the effectiveness test – the derivative notional amount cannot exceed the book adjusted carrying value (BACV) of the cash component. This ensures an insurer cannot synthetically create exposure materially larger than the assets supporting the trade.
• Potentially eliminate the need for fair value accounting; investment-grade replicated assets would be reported at amortized cost.
• Prevent RBC arbitrage so the overall RBC impact from replicated assets and the cash component is either a net increase to RBC or floored at zero. Put simply, RSATs may not reduce total RBC.

A referral to CATF and Blanks is likely once the provided revisions have been finalized.

Equity Method Investments – Fair Value Disclosures (Ref #2026-06)

SAPWG is proposing revisions to SSAP No. 100—Fair Value that would require certain equity-method investments previously excluded from fair value disclosures, including SSAP No. 48 (Schedule BA) and SSAP No. 97 (affiliate) investments, to be included in Note 20C and fair value hierarchy reporting. The proposal is intended to enhance transparency since many of these investments already report fair values elsewhere in statutory filings.

Industry commenters argued that a uniform fair value disclosure requirement may not be practical for all equity-method investments, particularly operating subsidiaries and certain private structures where fair value estimates can be difficult and costly to obtain. As a result, SAPWG is re-exposing the proposal and seeking input on a framework that distinguishes operating entities from investment-holding structures. The discussion has also broadened to whether reported fair values for equity-method investments consistently meet the SSAP No. 100 exit-price standard and support existing impairment assessments.

Reinsurance – Valuation of Funds Withheld (Ref #2026-02)

Regulators are looking to address inconsistencies in how insurers value and report funds withheld liabilities in reinsurance transactions. Particularly relevant for life insurers that use funds withheld, modco, and affiliated reinsurance, the proposal would clarify how the liabilities should be measured and how unfunded collateral should be reported.

SAPWG’s proposed revisions to SSAP No. 61 would establish a clearer framework distinguishing between arrangements where segregated assets and investment risk have been transferred and arrangements that are purely contractual. Under the proposal, the funded portion of a funds withheld liability would generally be measured based on the statutory accounting value of the supporting assets when investment risk is ceded, while other arrangements would continue to follow the contractual terms of the reinsurance agreement. The proposal also formalizes reporting for unfunded collateral receivables, where the reinsurer owes additional collateral under the contract that has not yet been posted.

This agenda item remains exposed for further industry feedback, with implementation expected no earlier than year-end 2027.

Invested Assets Task Force (SVO)

The Investment Analysis Working Group (IAWG) outlines roadmap for analyzing emerging trends

Regulators have detailed their anticipated areas of discussion for analyzing investment trends over the next 6-9 months. Focus areas include:

• RMLs – IAWG has performed an initial review of RML growth and has already referred the topic to both SAPWG and the LRBCWG for further consideration (see above). Continued monitoring is expected as market developments and enhanced reporting data become available.
• Level 3 / Less Observable Investments – Discussions will include a review of longer-term growth patterns, concentration considerations, and observed impairment activity.
• Fund Finance and Structured Finance, including an analysis of the evolution of collateral, with a particular focus on more complex or less transparent structures.
• Bond Issuer and Structured Securities Reporting – Regulators intend to analyze industry data generated under newer PBBD bond reporting and structured security classifications.

Adopted Items

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 credit rating providers, will now be referred to as HR Ratings LLC.

Exposed for comment

NAIC details framework for credit rating oversight

The NAIC is proposing a credit rating provider (CRP) framework used for validating NRSRO ratings used for the filing exemption (FE) and private letter ratings (PLRs). The framework is built around four components:

1. Scoping, which identifies CRPs, asset classes, and securities warranting review based on factors such as size, growth, methodology changes, spread outliers, or limited data;
2. Risk Assessment, which applies quantitative testing to evaluate whether ratings mapped to the same NAIC designation behave consistently across CRPs;
3. Detailed Testing, including methodology walkthroughs and independent security-level reviews for higher-priority segments; and
4. Governance, which creates an annual review process and establishes a set of escalating actions if concerns are identified, ranging from increased monitoring and additional testing to changes in how ratings are translated into NAIC designations, loss of filing-exempt treatment for certain assets, or removal of a rating agency's approval for regulatory use.

The overarching objective is to reduce "blind reliance" on ratings and ensure that CRP ratings used by insurers produce consistent and reasonable investment risk assessments for regulatory capital purposes.

While most initial industry feedback was supportive of the framework, a recurring concern was that it could implicitly encourage rating convergence by creating pressure on NRSROs to align methodologies and credit opinions rather than maintain independent analytical perspectives. Commenters also expressed concern that the framework may be biased against private credit and emerging asset classes, where limited historical performance data could lead to heightened scrutiny despite the absence of evidence of increased credit risk.

Regarding next steps, the NAIC has indicated that it will continue to work with PwC on a revised version of the framework.

CLOs – Filing exempt status to be restored

In 2023, regulators adopted a plan to make CLOs financially modeled securities, similar to RMBS and CMBS, where NAIC Designations were to be based on modeled tranche losses rather than NRSRO credit ratings. Before the framework could be finalized, the NAIC shifted focus to the RBC Investment Risk and Evaluation Working Group's (RBCIREWG) CLO project, which developed the new CLO RBC factors adopted in June.

With the revised RBC framework now in place, IDAWG is proposing to restore FE status for CLOs, under which NAIC Designations would once again be based on equivalent credit ratings rather than modeled losses. The proposal is currently exposed for comment through September 14.

Referred to other working groups

Pacific Credit Ratings requests to be an NAIC credit rating provider

Pacific Credit Ratings, a Latin America based credit rating agency that is seeking to expand into the U.S. market, has sent a rating agency request to become an NAIC credit rating provider. The proposal will be reviewed by the Credit Rating Provider Working Group (CRPWG).

¹ This is to ensure that existing unrealized derivative gains and losses can migrate into the new framework without creating artificial gains, losses, or surplus volatility upon adoption.