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MARKET INSIGHTS    NAIC

NAIC Working Groups June Update

NAIC Working Groups June Update

MARKET INSIGHTSNAIC

The Property and Casualty Risk-Based Capital Working Group, Life Risk-Based Capital Working Group, and Capital Adequacy Task Force of the NAIC held meetings on June 9, June 11, and June 30, 2021, respectively. The following items pertain to investment accounting.

Property and Casualty Risk-Based Capital Working Group 

ADOPTED ITEM EFFECTIVE DECEMBER 31, 2021

Consider adoption of Proposal 2021-08-P (PC Bond Factors and Instructions)

This item updates new bond factors for 20 NAIC Designation Categories and reclassifies hybrid securities from equities into bonds in PR006, PR011 and PR015. For details of the new bond factors, please see this document.

Life Risk-Based Capital Working Group

ADOPTED ITEMS EFFECTIVE DECEMBER 31, 2021

Consider adoption of new bond factors (proposed by ACLI REF#2021-11-L or Academy REF#2021-10-L), bond size adjustment factors and tax factor adjustments

This item updates bond factors for 20 NAIC Designation Categories, bond size adjustment factors, and tax factor adjustments. The majority of working group members voted for the bond factors proposed by the American Council of Life Insurers (ACLI), bond size adjustment factors proposed by the American Academy of Actuaries (Academy) with minor modifications (see below), and tax factor adjustments for LR030 Calculation of Tax Effect for Life and Fraternal Risk-Based Capital.  

To ease the burden on insurers that have less than 50 issuers in their bond portfolio holdings, the regulators propose modifying:  

• The first two thresholds from first 10/next 90 to first 50/next 50; and 

• The first bond size adjustment factor from 7.80 to 2.90, which is the breakpoint of the first 50 issuers, i.e. (7.80 x 10 issuers + 1.75 x 40 issuers) / 50 issuers = 2.90

Capital Adequacy Task Force 

ADOPTED ITEM EFFECTIVE DECEMBER 31, 2021

Consider adoption of Proposal 2021-07-CA (Update the RBC factors for Receivables for Securities)

This item updates the receivable for securities factors based on a weighted average calculation of bonds, common, preferred and hybrid stock investments. The factor is increased from 0.014 to 0.015 for life insurers but decreased from 0.025 to 0.024 for health insurers and 0.025 to 0.020 for property and casualty insurers.

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