Key updates from the 2025 NAIC Spring National Meeting

The National Association of Insurance Commissioners (NAIC) Spring National Meeting took place during the week of March 24th in Indianapolis, IN. Key updates from the spring meeting that we continue to monitor include:

• Risk-Based Capital (RBC) Model Governance Framework
• RBC Principles for Bond Funds
• Accounting for Investment Subsidiaries – Focus Shifting to Residential Mortgage Loans (RML)
• Funds withheld (FWH) / Modified Coinsurance (Modco) Assets and Collateral Loans – NAIC Advances Increased Disclosures
• Private Rating Letter Rationale Reports – SVO Clarifies Requirements
• Limiting the Public Availability of RBC data

RBC Model Governance Task Force

As some background, the RBC Model Governance Task Force was established in 2025 and is chaired by Director Judith French of Ohio and Commissioner Nathan Houdek of Wisconsin. Its stated purpose is to develop “…guiding principles for updating the RBC formulas to address current investment trends with a focus on more RBC precision in the area of asset risk…” This was not the task force’s first meeting, but it attracted much attention in Indianapolis.

While the group’s meeting this spring was focused on adopting the task force’s 2025 charges, we believe this committee will be one to watch closely going forward, and we are particularly focused on the results of the committee's work on a comprehensive gap analysis.

Additionally, we are monitoring how the stated goals of this task force may impact the ongoing work of the Securities Valuation Office’s (SVO) and the RBC Investment Risk and Evaluation (RBC IRE) working group to develop CLO modelling frameworks, although both the Society of Actuaries and the SVO continue to work independently towards their preferred solutions.

A summary of the working group’s adopted charges can be found here.

RBC principles for bond funds

After being left off the agenda at the 2024 Fall National Meeting, the NAIC provided an update on its progress in updating the RBC treatment of certain bond funds where the economic substance is similar. For example, bond mutual funds are being recommended for bond RBC treatment – which bond ETFs already receive. Both the NAIC and the industry appear to be in agreement on the framework proposed by the ACLI, and the RBC IRE has directed NAIC staff to begin drafting a proposal focused on updating the Life RBC formula.

Eventually, we expect the NAIC to broaden the proposed treatment to both the PC and Health formulas, which will be boosted by the RBC Model Governance Task Force’s desire to be consistent where possible. It is also worth noting that despite broad consensus, the NAIC does not expect to have updates in place for YE 2025 filings.

ACLI's Proposed framework can be found here.

Accounting for investment subsidiaries – Focus shifting to RMLs

As a brief reminder, investment subsidiaries are SCAs (subsidiary, controlled, or affiliated companies) with no operations other than holding assets meant to be reported as common stock investments and held at equity value (based on audited GAAP statements). For RBC purposes, insurers are allowed to “look through” the underlying assets and hold RBC on that basis. The current reporting guidance is vague, and in 2024, the Statutory Accounting Principles Working Group (SAPWG) initiated its efforts to understand better what is reported on Schedule D Part 2 and Part 6.

Fast forward to this spring’s national meeting, and SAPWG has decided to defer any action on the accounting for investment subsidiaries pending further study on the type of structures and underlying investments insurers hold in their investment subsidiaries. We view this as having the greatest impact on those insurers who hold RMLs in a Delaware statutory trust reported on Schedule D Part 2 and Part 6, as the NAIC believes these make up the vast majority of what is being reported as investment subsidiaries on those schedules. While it is unclear what direction the NAIC will ultimately take, those with exposure to these structures would be wise to devote additional attention to this issue.

FWH / Modco assets and collateral loans – NAIC advances increased disclosures

Increased statutory disclosure was a key focus of SAPWG, with the two most significant impacts on disclosures of FWH / Modco assets and changes to how insurers report collateral loans. While the proposed changes still need to be adopted by the blanks working group, we are confident that they will happen after the close of the exposure period later this month.

Collateral loan reporting on schedule BA will expand to six categories based on the underlying qualifying admitted asset collateral and will also require a new, similar disclosure in the Asset Valuation Reserve (AVR) exhibit. No new RBC charges have been proposed yet, but we fully expect to see them down the road.

Changes regarding the identification of FWH / Modco assets derive from the NAIC’s desire for greater visibility into these assets, for which insurers receive RBC credit as the assets are held for the economic benefit of a reinsurer. The industry pushback against CUSIP-level disclosures was ultimately successful, and the newly proposed Schedule S Part 8 for life/fraternal insurers will have a similar structure to that of the AVR. We are also keeping a close eye on how the proposed NAIC requirements may impact the ultimate form of the proposed Bermuda Monetary Authority’s asset holding disclosures, which currently would require a CUSIP-level breakdown.

Private rating letter rationale report– SVO clarifies requirements

Following a flurry of activity around the January 1^st deadline to submit rating rationale reports for securities supported by private rating letters, the SVO reported that 346 securities had been removed from the filing exempt (FE) process as they lacked the necessary documentation. As part of the Valuation of Securities Task Force (VOSTF) meeting, the SVO exposed two proposed updates to its purposes and procedures manual requiring insurers to file rationale reports within 90 days of a rating action and that those reports must be substantive.

While seemingly administrative in nature, we feel this could frustrate insurers and their asset managers. The SVO clarified that substantive reports will be required even if rating agency procedures don’t require them as part of their annual surveillance/review process. Clients with significant PRL securities would likely benefit from reaching out to the rating agencies to better understand how this may impact them.

The Bermuda Monetary Authority’s Asset Transparency Materials can be found here.

RBC preamble - Limiting the availability of RBC data

Taking the title of the liveliest meeting of the NAIC’s spring meeting, the Capital Adequacy Task Force drew a number of comments around its decision to re-expose updates to the RBC Preamble and Section E, which would eliminate capital disclosures in the Five Year History exhibit, essentially preventing the disclosure of RBC ratios publicly.

It is easy to see the NAIC’s point of view that RBC ratios are not directly comparable and can be misconstrued by market participants. However, we tend to agree with the consumer groups that offered comments that a reduction in transparency is ultimately negative for the industry.