With the NAIC Spring National Meeting approaching in March, and despite the fact that insurers are still working their way through the year-end process, NAIC group activity was back to normal. The activity included those groups meeting virtually in lieu of in-person at the Spring National Meeting in March, as well as business-as-usual meetings.
Risk-Based Capital (RBC) Model Governance Task Force – via email February 8, 2025
The NAIC introduced this new Task Force and released for comment a memorandum (memo) providing the background for organizing the group, its 2025 goals, the role of an as-yet-to-be-hired consultant, and the consultant’s 2025 goals.
According to the memo, the need for the new Task Force arose because of the increasing complexity of investment management strategies as the insurance industry seeks to increase its investment yields. Accordingly, the Task Force will develop principles for updating the RBC formulas to address the current investment trends, focusing on more precision of asset risk.
The 2025 listed goals are:
- Develop guiding principles for future RBC adjustments.
- Perform a comprehensive gap analysis to identify inconsistencies and prioritize solutions where appropriate.
- Design an education and messaging campaign to highlight the RBC framework’s strengths.
To accomplish these goals, the NAIC plans to hire an external consultant. The consultant will be charged with developing the principles and performing needed analysis to meet the above goals. Responsibilities also will include overseeing and coordinating activities between all of the NAIC groups and creating a process to analyze retrospective and future adjustments to the RBC.
Comments are to be submitted before March 12, 2025.
RBC Investment Risk and Evaluation Working Group – February 11, 2025
The Working Group received an update from the American Academy of Actuaries (Academy) on its collateral loan obligation RBC project. The presentation was really a summary of all activity that had occurred since its inception in August 2022 through the current time, with a short discussion of what items still remain to be done. Attention then turned to a presentation prepared by the American Council of Life Insurers regarding RBC principles for bond funds. The presentation focused on three specific kinds of bond funds: bond exchange traded funds, SEC registered bond mutual funds, and private bond funds, and their RBC treatment. The presentation was exposed for a 24-day comment period ending March 7 with the goal of further discussion during the upcoming NAIC Spring National Meeting.
Joint Meeting of Property RBC Working Group and Catastrophe Risk Subgroup – February 17, 2025
The groups heard updates on the following:
- The review of CoreLogic’s Wildfire Model. A further update will be provided at the upcoming NAIC Spring National Meeting.
- Wildfire Impact Analysis, which is a related but different project than the model review. The work of this group cannot be completed until the model review is completed. During the discussion, attention was called to the fact that only 13 western states are included in the analysis. The location of the participating states is important, as regulators have had inquiries from some insurers not insuring risks in those 13 states regarding their desire to add a surcharge for wildfire coverage. The group emphasized that at this time the use of the data would not be appropriate and especially for insurers not operating in those 13 states.
- Wildfire Modeled Losses Impact Analysis, which uses data collected from RBC filing. At the current time, there is only data available from the 2022 and 2023 RBC filings. The 2024 filings have not been completed yet.
For year-end 2024, climate impact disclosures were added to the Property RBC formula as an information collection tool. The plan is for these informational disclosures to remain in the formula for 2025 and 2026 before further action is taken. The groups are discussing how flood peril might be incorporated into the RBC formulas. They have been holding panel discussions involving various stakeholders and announced there will be another panel discussion this summer. The Academy provided an update on its current underwriting risk projects. It hopes to have a draft of a working agenda for presentation at the NAIC National Meeting. As its final act, the Property Working Group exposed for comment a memo from the Statutory Accounting Principles Working Group (SAPWG) regarding the current treatment of some Schedule BA assets in the formula. The comment period ends on March 20.
Life RBC Working Group – February 21, 2025
Several items were addressed during the meeting.
| Reference # | Subject | Disposition |
|---|---|---|
| 2024-21-L | Tax credit investments. | Re-exposed through March 23, 2025. |
This proposal had been previously exposed for comment; therefore, the discussion began with comments received during that period. If adopted, the Life RBC structural and instructional changes for tax credit investments as reported in Schedule BA in the annual statement will be implemented. Factors will be addressed later. The changes reflect the new reporting of these investments in Schedule BA, as well as the new categories of tax credits resulting from revisions to Statement of Statutory Accounting Principle (SSAP) No. 93 – Investments in Tax Credit Structures and SSAP No. 94 – State and Federal Tax Credits. The Working Group will send a referral asking if this proposal also should be considered for the Health and Property/Casualty RBC formulas.
| Reference # | Subject | Disposition |
|---|---|---|
| 2024-24-L | Revisions because of principles-based bond project. | Re-exposed through March 23, 2025. |
As anticipated, numerous changes to several of the investment schedules in the annual statement beginning in 2025 resulted in the Life RBC formula also needing to be addressed. This proposal makes many of those format and instructional changes but does not change any of the associated factors. Several revisions to the original proposal were made based on comments received. However, NAIC staff felt some of the comments received were more than just cleanup and should not be included in this proposal but reviewed and addressed at a later date.
| Reference # | Subject | Disposition |
|---|---|---|
| 2025-01-L | Provides direct annual statement pulls into the C-2 Mortality Risk. | Exposed for comment through March 23, 2025. |
Beginning with the 2024 Annual Statement, a general interrogatory now provides information that can be directly pulled into the C-2 Mortality Risk of the Life RBC formula. This proposal acknowledges that general interrogatory information as an Annual Statement reference and indicates the direct pull should be used. This change also will allow for crosschecks between the Annual Statement and the RBC formula.
| Reference # | Subject | Disposition |
|---|---|---|
| 2025-05-L | Asset Concentration reporting of Schedule BA assets. | Exposed for comment through March 23, 2025. |
The completion of the NAIC’s Bond Project has resulted in several RBC implications that might not have been anticipated. This proposal attempts to address one of those issues, the reporting of Schedule BA assets in the Asset Concentration. In addition, the proposal will be referred to the Statutory Accounting Principles Working Group for review and possible comments.
Statutory Accounting Principles Working Group (SAPWG) – February 25, 2025
Usually, the Working Group’s meetings are divided into two parts, a hearing for items that had been previously exposed for comment followed by a meeting for the introduction of new items and/or discussions of projects in process. This time, however, only a hearing was held. The following actions were taken.
| Reference # | Subject | Disposition |
|---|---|---|
| 2023-24 | Issue paper providing historical record documenting pre-Current Expected Credit Losses (CECL) GAAP impairment guidance to be maintained. | Had previously extended comment period through May 2, 2025. |
Originally exposed for comment in August 2024, at the request of industry the comment period has now been extended twice for this item.
| Reference # | Subject | Disposition |
|---|---|---|
| 2024-16 | Results in statement instructions revisions to Schedule D – Part 4 for the reporting of securities sold to a special purpose vehicle (SPV) and then reacquired from the SPV. | Adopted. Proposal submitted to Blanks Working Group (BWG). |
There are no accounting changes with this adoption, but statement revisions for clarification have been submitted to BWG. The instructions indicate that sales of securities to an SPV, or other entity where a new instrument reflecting a combined instrument that contains the original security and derivative instruments or other components is then reacquired from the SPV, are to be recorded as a sale in Schedule D – Part 4 (or Part 5, if appropriate), with the new security reported as an acquisition in Schedule D – Part 3 (or Part 5, if appropriate).
| Reference # | Subject | Disposition |
|---|---|---|
| 2024-22 | Adopts with modifications Accounting Standards Update (ASU) 2024-01, Compensation – Stock Compensation (Topic 718), Scope Application of Profits Interest and Similar Awards as a revision to SSAP No. 104 – Share-Based Payments. | Adopted, effective immediately. |
| 2024-25 | SSAP No. 16 – Electronic Data Processing Equipment and Software revisions clarify references to GAAP Accounting Standards Codification. | Adopted, effective immediately. |
| 2022-14 | Issue paper documenting revisions to SSAP No. 93 – Investments in Tax Credit Structures and SSAP No. 94 – State and Federal Tax Credits resulting from the tax credits project. | Adopted, with minor edits, effective immediately. |
| 2024-10 | Changes to SSAP No. 56 – Book Value Separate Accounts addressing accounting guidelines where assets in the separate accounts use a measurement other than fair value. | Adopted, effective January 1, 2026, with early adoption permitted. |
Previously, SSAP No. 56 primarily focused on separate accounts products where the policyholder bore the investment risk and the assets were valued at fair value. However, there has been an increase in separate accounts assets supporting fund accumulation contracts, which do not participate in the underlying portfolio experience and are valued at “book value.” These products are approved by the state regulatory authority as a prescribed/permitted practice and/or interpretation. SSAP No. 56 lacked guidance on transferring of assets between the separate and the general accounts where the assets will be retained and reported at “book value.” These revisions correct that situation. The adopted revisions not only affect accounting, but also statement reporting and required disclosures. The adoption should be carefully reviewed, as there are several substantive revisions. The effective date was set at January 2, 2026 to allow insurers to update the separate account “plans of operation” with their state of domicile. After January 1, 2026, companies are required to have an approved permitted or prescribed practice to utilize book value measurement or a different approach.
| Reference # | Subject | Disposition |
|---|---|---|
| 2024-23 | Revisions to SSAP No 86 – Derivatives provides clarifications on the language surrounding financing premiums and the calculation of realized losses in relation to derivative premium. | Adopted, effective immediately. |
The adopted revision covers two issues; inconsistent terminology between SSAP No. 86 and the Annual Statement Instructions and confusion as to whether accounting guidance allows derivative premium costs to be captured in the calculation of realized losses for derivative transactions. The changes clarify existing language through stronger definitions and indicating that companies are to amortize derivative premiums over the life of the derivative contract and, as such, would not be a component in determining realized losses at expiration. Statement instructions also will be revised by BWG.
| Reference # | Subject | Disposition |
|---|---|---|
| 2024-24 | Issuance of Interpretation (INT) 24-02: Medicare Part D Prescription Payment Plans and edits to INT 05-05: Accounting for Revenues Under Medicare Part D Coverage. | Re-exposure for shortened period ending March 5, 2025. |
The implementation of the Medicare Prescription Payment Plan (MPPP) on January 1, 2025 necessitated the issuance of INT 24-02 and edits to INT 05-05. INT 24-02 covers the admission of receivables from MPPP participants, impairment analysis, and the writing off of uncollectible receivables. INT-05-05 was edited to refer to INT 24-02.
| Reference # | Subject | Disposition |
|---|---|---|
| 2024-27 | Classifies issue papers as a Level 5 resource in the statutory hierarchy. | Adopted, effective immediately. |
In the development of the statutory hierarchy, issue papers were not included. In 2024, industry-interested parties suggested issue papers should be included as authoritative resources. Since issue papers are not always updated after the adoption of an SSAP, and other resources in the hierarchy Levels 1–4 supersede Level 5 resources, the regulators decided that Level 5 was the correct placement of the issue papers. The Level 5 classification puts issue papers beneath all other sources of statutory guidance.
| Reference # | Subject | Disposition |
|---|---|---|
| 2024-28 | Revisions to SSAP No. 41 – Surplus Notes regarding holders of Capital Notes. | Adopted, effective immediately. |
This proposal was an out-cropping of the NAIC’s Bond Project, specifically with the issuance of INT 24-01: Principles-Based Bond Definition Implementation Questions and Answers. Because of the INT, industry identified areas it thought should be reviewed regarding the valuation of capital notes. The revisions include a definition of capital notes, admittance restrictions, clarification of the use of NAIC designations for reporting, and updated impairment guidance. Annual statement instruction definitions for surplus debentures and capital notes also will be updated.
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