It has been an active summer for insurance investment regulation as the National Association of Insurance Commissioners (NAIC) continues on its journey to reshape itself amid an evolving investment landscape. Several important proposals have been adopted, exposed, or introduced over the last few months across investment accounting, risk-based capital (RBC), and governance. These activities culminated in the NAIC’s Summer National Meeting in Minneapolis, which took place August 9-13, 2025.
Key highlights in this update from both the Summer National Meeting and other recent NAIC meetings include:
- Collateralized Loan Obligation (CLO) Risk-Based Capital (RBC) Modeling
- Negative Interest Maintenance Reserve (IMR)
- Residential Mortgage Trusts
- Investment Subsidiaries
- Private Securities Reporting
- RBC Preamble
- RBC Model Governance (EX) Task Force Principles
- Valuation of Securities (E) Task Force (VOSTF) Restructuring
- Macroprudential Working Group (MWG) Funding Agreement Backed-Notes (FABN) Educational Meeting
CLO RBC Modeling – SSG Modeling Postponed to YE 2026; Academy Provides Preliminary Modeling Results
SSG Modeling Delay: At the Summer National Meeting, VOSTF directed NAIC staff to prepare and expose a proposal to delay the effective date of CLO modeling for NAIC designations by the Structured Securities Group (SSG) until December 31 2026. While the SSG reported at the meeting that they are operationally ready to model insurer CLOs for the current effective date of year-end 2025, VOSTF requested a one-year delay in the effective date to allow more progress to be made on the parallel CLO modeling workstream led by the RBC Investment Risk and Evaluation (RBCIRE) Working Group and the American Academy of Actuaries (Academy).
Academy Modeling Update: On September 8 2025, the Academy joined an ad hoc RBCIRE call to provide their first quantitative update to their research into a C1 framework for CLOs. The materials shared additional detail into the Academy’s CLO modeling process and showed summary results of 6 sample broadly-syndicated CLO deals. The Academy acknowledged that the preliminary results are thematically similar to the SSG’s framework – senior tranches show little-to-no losses while more junior tranches show much higher risk. The Academy’s current timeline expects an initial set of comparable attributes with factors by late 2025 or early 2026, with potential exposure of final factors by April 30 2026. However, this timeline is subject to feedback from regulators and interested parties on the framework and any additional modeling that may be required, such as sensitivity testing.
At a high level, the Academy’s preliminary modeling framework projects 10,000 scenarios for the CLO collateral using the same model and (where possible) assumptions as C1 bond factors. Select tail scenarios are then fed into a cash flow waterfall model to estimate tail losses on CLO debt tranches, and the scenarios are weighted to arrive at a conditional tail estimate (CTE). The Academy’s presentation highlights a number of important philosophical and technical decisions that needed to be made about which regulators and interested parties may have feedback, such as consistency with C1 bond factors, active management of CLOs pools, and reflecting reinvestment of collateral. The materials also include a comparison of key differences and similarities with the SSG’s CLO modeling framework.
Negative IMR – Extended through 2026
The Statutory Accounting Principles Working Group (SAPWG) voted to extend the temporary guidance provided by INT 23-01 through December 31 2026, which allows net negative IMR to be admitted up to 10% of surplus, subject to certain adjustments and requirements. The temporary guidance was set to expire on December 31 2025, so this extension provides an additional year for the IMR subgroup to work through certain considerations that were still being deliberated among regulators and interested parties. Two major areas that are still being discussed include:
- Reinsurance: the working group is evaluating how IMR is reflected in reinsurance treaties and the accounting impact to the cedent. Key points of discussion are whether IMR should be reflected the same whether it is positive or negative, and providing guidance that ensures consistent treatment of IMR in reinsurance treaties across insurers.
- Proof of reinvestment: a key assumption when reflecting a loss in IMR is that the proceeds from selling a fixed income asset are reinvested in other fixed income assets, rather than used for some other purpose such as operational needs or purchasing equities. The working group is developing a verification framework based on sale/purchase volumes and sale/purchase book yields as reported in statutory financials, which will help demonstrate that this requirement has been met.
Residential Mortgage Trusts – Revised Proposal Exposed
SAPWG has been working on revisions to Statement of Statutory Accounting Principle (SSAP) No. 37 – Mortgage Loans to provide eligibility and reporting guidance for trust structures which hold residential mortgage loans, and there has been a significant amount of discussion between regulators and interested parties on the proposal. At the Summer National Meeting, SAWPG exposed an updated proposal (2025-13) capturing some of that feedback, including:
- Allowing the trust to hold both cash and foreclosed real estate in addition to residential mortgage loans
- Expansion to include any single residential mortgage eligible under SSAP No. 37, rather than just first-lien mortgage loans in the initial proposal
- Additional clarity that a trust series must maintain separate and distinct records from the overall trust and other series
- Clarification that a trust may pledge assets on behalf of an insurer, but any assets encumbered due to the trust itself (i.e., not on the insurer’s behalf) are nonadmitted
- Removal of management fee disclosure language and adding language that these trusts are subject to similar related party and affiliate disclosure requirements
- Disclosure requirements for a summary of asset and liabilities held by the trusts to provide regulators with additional clarity
The NAIC rejected certain requests from interested parties which they felt would significantly broaden the scope of the intended guidance. Specifically, the NAIC did not agree with allowing common law trusts (in addition to statutory trusts) as an eligible trust structure, allowing trusts to hold foreclosed real estate within wholly-owned LLCs, and allowing trusts to receive “other assets” as proceeds from RMLs.
The revised proposal is exposed for public comment until October 17, 2025.
Investment Subsidiaries – Proposal to Remove Concept from Instructions
Investment subsidiaries have been a recent focus area of SAPWG as regulators became aware of inconsistencies across the SSAPs, the annual statement instructions, blanks, and RBC instructions regarding investment subsidiaries. Specifically, the concept of an investment subsidiary was removed from SSAPs in 2005, but it remained in annual statement instructions and life insurer RBC instructions, and as a result insurers have taken a variety of approaches to reporting them and calculating RBC against them. Investment subsidiaries originally received look-through treatment for RBC purposes.
At the Summer National Meeting, SAPWG exposed a proposal (2024-21) to eliminate the concept of an investment subsidiary from annual statement instructions effective December 31, 2026, as well as a referral to Life Risk-Based Capital (E) Working Group to remove the concept from RBC instructions. They view this as aligned with the original intent of removing investment subsidiaries from the SSAPs in 2005. Under the proposal, investment subsidiaries could still be held and would be subject to SSAP No. 97 – Investments in Subsidiary, Controlled and Affiliated Entities, paragraph 8.b.ii or 8.b.iii. Importantly, the investment subsidiaries would no longer receive RBC lookthrough treatment.
One of the primary uses of investment subsidiaries was to hold residential mortgage loans, and as discussed above SAPWG is working on distinct guidance for that specific use case. The NAIC is requesting the industry to provide additional use cases that may warrant similar attention.
The proposal is exposed for public comment until October 17, 2025.
Private Securities Reporting – New Indicators and Disclosures
SAPWG exposed a proposal (2025-19) to add a new electronic disclosure in the statutory investment schedules to identify private placement securities based on their type along with an aggregate disclosure of certain key metrics across these asset types. Insurers would need to categorize securities in the investment schedules as either publicly registered, 144A, Regulation D, 4(a)2 general exemption, or N/A if the security does not need to be SEC-registered. Key metrics that would be reported in aggregate include:
- Total Book-Adjusted Carrying Value (BACV)
- Total Fair Value
- Amount that is fair valued as level 2 or level 3
- Aggregate deferred interest
- Aggregate paid-in-kind (PIK) interest
- Total BACV with private letter rating (PLR) as NAIC Designation
These new disclosures would provide regulators with more granular information on the nature of private securities held by insurers, make it easier to quickly identify private securities in the schedules, and provide more insight into the use of level 3 fair values.
This SAWPG proposal proposal is exposed for public comment on an accelerated timeline ending September 19, 2025.
Additionally, VOSTF exposed a proposal for a Security ID field in the annual and quarterly statements which would include the various types of security identifiers used by insurers in a single column, along with a Security ID Type field indicating whether the ID is a CUSIP/CINS, a ISIN, or a PPN. Currently, these identifiers are in separate fields which makes analysis challenging, and the SVO identified over 10,000 unique securities with missing or invalid ID in year-end 2024 reporting representing $55 billing in BACV. This proposal is exposed for a 30-day public comment period ending September 12th, 2025.
RBC Preamble – Proposed Language Limiting Use of RBC
One of the key agenda items at the Capital Adequacy Task Force (CATF) meeting was to discuss proposed edits (2024-16-CA) to the RBC Preamble, which describes the background, purpose, objectives, and critical concepts of the NAIC’s RBC framework. The NAIC has become increasingly aware of and sensitive to the use of RBC-related information by industry, interested parties, and the broader public for a number of different purposes which some argue are inconsistent with RBC’s stated purpose: “to identify potentially weakly capitalized companies.”
The proposed edits to the Preamble attempt to emphasize where RBC is not intended to be used, and include a new “Limited Use of Risk-Based Capital” section which elaborate on RBC’s limitations. Key points that are emphasized by CATF in its proposal include:
- Using RBC for any purpose other than to identify weakly capitalized companies for regulatory purposes would be inappropriate
- RBC cannot be used to provide a complete, clear, or meaningful ranking of insurers
- RBC requirements were set for regulatory purposes and were not developed or intended for other uses, and as such would not be appropriate to rely on in other contexts (such as reserve-setting, risk management, investment risk analysis)
- RBC is a broad tool for oversight and an insurer’s RBC can fluctuate without a corresponding change in an insurer’s financial strength
This proposal has received strong engagement from the insurance community with numerous comment letters sharing the ways in which RBC, despite its limitations, must be or is effectively relied on for other downstream applications, as well as concerns that the new language in the Preamble could lead to reduced public transparency around insurer solvency levels in the future.
While this debate has continued for over a year, the NAIC is hoping to make a final proposal in October, and is requesting any proposed redline edits from interested parties at least 2 weeks in advance.
RBC Model Governance (EX) Task Force – Preliminary Principles Feedback
The RBC Model Governance (EX) Task Force met at the Summer National Meeting to hear feedback on the preliminary principles that will guide the Task Force’s activities around investment RBC. The preliminary principles were developed in partnership with Bridgeway Analytics and focus on 6 key areas (paraphrased):
- Use of RBC: focus on RBC as a tool only to identify weakly capitalized companies, but with some additional consideration given to global competitiveness / insurance groups as well as that idea that RBC should (secondarily) consider its impact on product competitiveness and availability
- Objectivity: RBC should be measured at consistent statistical levels while capturing nuances of the specific exposure and with appropriate consideration of concentration, diversification, and tail risks, and generally be consistent with other components of the statutory framework (accounting, reserving, etc.)
- Consistency with Statutory Accounting: RBC charges should be derived from values in the statutory annual statement
- Emerging Risks: Evaluating emerging risks should consider materiality, velocity of change, and potential limitations in measurement
- Changes to RBC Calculations: changes should be collaborative with stakeholders and allow sufficient time for feedback, and adhere to the concept of equal capital for equal risk while considering materiality
- Governance: components of the RBC framework should adhere to Model Governance Standards around model development, documentation, validation, monitoring, and change management
Over 150+ pages of comments were received with 16 commenters providing verbal summaries of their positions during the Summer National Meeting (comments can be found here with summaries beginning on page 10 and comments beginning on page 37). While there was extensive feedback on all principles, “Use of RBC” received significant attention as it is similar to the RBC Preamble debate (discussed above), with additional focus on secondary global competitiveness / consumer impact considerations which some feel are beyond the scope of RBC.
This initiative is early stages and the Task Force has not made any formal proposal for guiding principles, so it is likely there will be more iterations between regulators and interested parties.
As a reminder, the RBC Model Governance Task Force is an Executive (EX) Committee task force responsible for developing guiding principles for future RBC adjustments, completing a comprehensive gap analysis of the RBC formula, developing an educational campaign to highlight the strengths and benefits of the RBC framework, facilitating alignment among all NAIC committees related to RBC, and creating a process to review RBC outcomes and ensure alignment with the principles. The activities of this committee are expected to have a meaningful impact on investment RBC going forward.
VOSTF Restructuring – Adopted 7/28
On July 28th, the NAIC’s Financial Condition (E) Committee adopted previously exposed structural changes to the Valuation of Securities Task Force (VOSTF). VOSTF will be renamed the Invested Assets (E) Task Force (IATF) and will be commissioner-led with support from three new Working Groups:
- Investment Analysis Working Group: charged with monitoring risks associated with all types of assets, but especially new/complex ones, as well as the insurers allocating to those assets. They will also look to enhance the NAIC’s investment technology and modeling capabilities
- SVO and SSG Working Group: charged with a similar scope of responsibilities as the current SVO and SSG
- Credit Rating Provider Working Group: charged with tasks related to overseeing and diligencing credit rating providers, and running the process for regulators to challenge NAIC designations obtained through the filing exempt process
This reorganization generally aligns with the spirit of the “Framework for Regulation of Insurer Investments” with increased focus on investment analysis and credit rating provider oversight. Additionally, the Invested Asset Task force being commissioner-led should mean more direct engagement from senior regulators in investment regulatory developments.
MWG FABN Meeting – Educational Call on 7/14
On July 21st, MWG held an open call to initiate discussion on Funding Agreement-Backed Notes (FABNs), including those denominated in foreign currency. The session covered issuance processes, product structures, risk considerations, and reporting practices. The NAIC presented its preliminary analysis, followed by an ACLI presentation that offered additional context on the origin and strategic use of FABNs. This meeting marks the start of a broader effort by MWG to deepen its understanding of FABN activity – driven in part by the Federal Reserve’s continued attention to this activity, which has been flagged in its last three Financial Stability Reports.
