NAIC gets pushback on fast-track effort to add ‘rigor’ to 33-year-old RBC standard
State insurance regulators are moving quickly on a controversial plan to overhaul the risk-based capital (RBC) framework by the end of 2025.
The Risk-Based Capital Model Governance Task Force was established in February by the National Association of Insurance Commissioners. Its first task: to update the RBC standard hammered out by the NAIC in 1992.
NAIC President and North Dakota Insurance Commissioner Jon Godfread called it one of the “most significant” things the NAIC will undertake in 2025.
“When RBC is governed with clarity, it enables smarter product development and stronger global alignment,” Godfread said during his keynote address at the NAIC summer meeting this week. “But if we put the cart before the horse, if we design only based on outcomes and not structure, we risk eroding the very solvency RBC is intended to protect.”
RBC helps regulators ensure that insurance companies hold enough capital to support the risks they take on. It helps protect policyholders by reducing the likelihood of insurer insolvency.
Godfread acknowledged the growing presence of offshore reinsurance and private equity control over life insurance reserves. The NAIC is undertaking a number of simultaneous efforts to strengthen oversight of those reserves.
“Solvency in 2025 is a far cry from solvency in 1985,” Godfread said. “It’s moving faster, more complex, and deeply interwoven with enterprise capital strategies.”
‘Not a zero-failure mandate’
The RBC task force previewed its thoughts with a July 3 memo requesting comments on a “proposed preliminary [RBC] principles and questions.” The task force shared 15 comment letters and invited the authors to speak during a Tuesday meeting.
Mike Consedine is executive vice president and global head of government and regulatory affairs at Athene Holding. He warned regulators of the restrictive Solvency II regime in the European Union, where critics say rules force insurers into over-capitalization.
Consedine – who served as CEO of the NAIC from 2017 to 2023 – challenged regulators to define what RBC is and what it should become.
“I would argue that the NAIC has actually already answered that question when it framed RBC as an early-warning threshold, not a zero-failure mandate, and paired it with robust state guarantee funds,” he said. “That architecture lets U.S. insurers hold sufficient capital for unexpected losses and still deploy surplus capital into growth and needed products.”
Athene is the No. 1 seller of annuities with $36 billion in 2024. The company is a wholly owned subsidiary of Apollo Global Management, one of the world’s largest alternative asset managers.
The NAIC’s extended process to create the current RBC standard began after a string of life insurance failures in the 1980s. It ended with four major categories identified for the life formula: asset risk; insurance risk; interest rate risk; and all other business risk. The property/casualty and health formulas were implemented in 1994 and 1998, respectively.
Regulators from Virginia, Connecticut and Washington submitted comment letters on the current effort. The Connecticut Insurance Department is dealing with the financial mess left by PHL Variable and related companies. Commissioner Andrew Mais is serving as rehabilitator for the insurance companies and said recently that it is “unlikely” that all policyholders will be made whole.
ACLI: Don’t impede products
Dan Bumpus is deputy commissioner at the Virginia Bureau of Insurance. He reminded colleagues of the “one and only one purpose for RBC, which is to identify weakly capitalized insurance companies.
“[T]he RBC calculations must follow the principle of equal capital for equal risk, which includes the consideration of tail risk,” Bumpus added.
Speakers for the American Council of Life Insurers cautioned regulators against impeding access to products via its changes to RBC. The ACLI offered nine pages of “feedback” on the task force’s RBC principles.
“We believe that RBC charges should remain risk-based, period,” said Carrie Haughawout, senior vice president, life insurance and regulation. “While still acknowledging the need to continue to strike the right balance to protect policyholders without unnecessarily impeding access to products, especially long-term products.”
Meanwhile, another NAIC group, the Capital Adequacy Task Force, is debating a proposal that would prohibit any insurer from putting its RBC ratio in its earnings releases, press releases, webcast materials or presentations.
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