NAIC Proposes New Guidelines For Future RBC Rule Changes

Key Takeaways

• A National Association of Insurance Commissioners (the "NAIC") task force has proposed nine principles to be considered when adjusting risk-based capital ("RBC") for insurance companies.
• The principles have been largely well received by practitioners.

Background:

The NAIC, which provides expertise, data and analysis for insurance commissioners to effectively regulate the insurance industry and protect consumers, has established several working groups and task forces to review and update RBC levels required to be maintained by United States and territorial insurance companies on an annual basis. RBC is the model under which insurance companies are required to maintain minimum levels of capital based on an insurance company's size and the inherent riskiness of its financial assets and operations. These task forces periodically produce reports which are subject to notice and comment by stakeholders and industry practitioners.

2025 Updates:

In a memo on February 9, 2025, the Risk-Based Capital Model Governance Task Force (the "Task Force") outlined its three goals for the 2025 calendar year.¹ First, the Task Force seeks to develop guiding principles for future RBC adjustments; second, the Task Force seeks to perform a gap analysis of the existing RBC framework; and third, the Task Force seeks to design an education and messaging campaign regarding the strength of the RBC model for an increasingly global audience.

Updates to RBC levels impact the amount of capital held by insurance companies and have the potential to result in substantial changes in industry operations. As a part of the first goal and to improve transparency and reduce confusion among state regulators and the insurance industry, the Task Force seeks to establish guiding principles for RBC adjustments.

On this point, on July 3, 2025, the Task Force published the RBC Model Gov Chair Exposure (the "Exposure") outlining a broad governance framework for assessing and changing RBC calculations.² The four main components of the framework are to use: (a) the principles under discussion as a "guiding North Star" for future assessments and changes; (b) quantitative guidelines which would clearly articulate comparable benchmarks across RBC calculations; (c) the process set forth in the model governance standards for adjustments to RBC; and (d) case studies for additional guidance where necessary. The Exposure then outlined six preliminary principles for making RBC adjustments: (1) the use of RBC calculations; (2) objectivity; (3) consistency with statutory accounting; (4) emerging risks; (5) changes to RBC calculations; and (6) governance.

Subsequently, in a memorandum dated September 23, 2025, the Task Force noted that comments to the Exposure and oral comments at a meeting held on August 12, 2025 were aimed primarily at updating the governance framework and redefining the purpose of RBC, and included the following updated set of nine principles to guide future changes to RBC levels:³

1. Materiality
   1. RBC requirements should be updated when a potential change is material. Materiality for purposes of RBC means a level at which a decision whether to update RBC could meaningfully impact the regulator's assessment of the solvency risk for all or an identifiable segment of companies.
2. Equal Capital for Equal Risk
   1. RBC requirements should be guided by the principle of equal capital for equal risk, consistent in their statistical safety levels and time horizons, reflecting measurable risks that can impact solvency, including mitigating effects of risk management, except where the nature of a risk or business model warrants differences.
3. Objectivity
   1. RBC requirements should appropriately account for factors that impact solvency risk, including but not limited to concentration, persification, and tail risks, thereby avoiding the promotion or inhibition of actions that are unrelated to solvency risk.
4. Accuracy
   1. RBC requirements should be precise, allowing for the assessment of solvency risk, while avoiding unnecessary complexity for stakeholders.
5. Grounded in Statutory Accounting and Reserving
   1. Changes to RBC requirements should be derived from values reported in the statutory annual statement and calibrated to align with statutory accounting and reserving practices, to the extent practical.
6. Emerging risks
   1. RBC requirements should be updated to incorporate emerging risks (including macroprudential risk) by the time they become material to the industry or an identifiable segment of companies.
7. Transparency
   1. The process to maintain and update RBC requirements must adhere to the NAIC Policy Statement on Open Meetings⁴ and follow standards that provide for clear, complete, and transparent communication and documentation of proposed and adopted updates, methodologies, and supporting rationale.
8. Process
   1. Maintaining and updating RBC requirements must adhere to model risk management standards, relying on data-driven methodologies with assessments of model performance and model validation when possible, the need to rely on expert judgment and proxies, significantly so in some cases, and the use of interim solutions.
9. Prioritization
   1. Recognizing the vast number of potential refinements that could be made to RBC requirements at any given time, the groups tasked with updating and maintaining the RBC model should use regulatory judgment to prioritize changes, considering their necessity, materiality, time and resource intensity, and other relevant, material considerations.

In a follow-up call with the Securities Industry and Financial Markets Association ("SIFMA") on October 6, 2025, SIFMA lawyers reviewed the principles proposed by the Task Force and were generally satisfied with the framework but cautioned about potential internal inconsistency of some prongs, for example, materiality vs. accuracy, and the expected calibration of such criteria for practical application.

Conclusion

The Task Force has set forth nine updated principles for regulators to use when updating RBC levels. While some further clarifications are needed, the principles establish a workable framework for the annual review of RBC requirements by NAIC working groups. Following the notice and comment period, NAIC will look to finalize the principles to provide state regulators and NAIC committees with a clear framework for understanding RBC determinations. We will continue to monitor the ongoing practical applications and interpretation of the principles by states and their impact on rated note fund structures.

Footnotes

1. 2025 Goals and Proposed Charges (Feb. 9, 2025).

2. RBC Model Gov Chair Exposure (July 3, 2025).

3. Request for Comments on Proposed Revised Preliminary Risk-Based Capital Principles (Sept. 23, 2025)

4. NAIC Policy Statement on Open Meetings (Jan. 1, 1996)

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