Insurance investors navigate regulatory updates
NAIC has been busy since its summer meeting finalizing a wave of regulatory updates that will impact insurance portfolios
The National Association of Insurance Commissioners is moving forward on several of its workstreams and those efforts will impact how insurance investors manage their portfolios. The first wave of changes was announced at the summer meeting, followed by additional updates from some working groups in September. Updates include a restructuring of the Securities (E) Task Force, the creation of three new investment working groups, and further progress on changes to risk based capital frameworks. Taken together, these projects will change how insurance investors work with the NAIC and could impact investment decisions.
Task force restructuring
In June, the NAIC discussed restructuring its Valuation of Securities (E) Task Force into smaller groups. Each group would have a narrower focus, with the goal of addressing the growing complexity of insurance portfolios. At the summer meeting, regulators decided to move forward on this. As of next year the Valuation of Securities (E) Task Force will break into the Invested Assets (E) Task Force, Investment Analysis (E) Working Group, Securities Valuation Office and Structured Securities (E) Working Group, and Credit Rating Provider (E) Working Group.
The Invested Assets (E) Task Force will be a commissioner level group supported by the other working groups. The Task Force will coordinate with the working groups to address changes in insurance portfolios that could impact the risk based capital framework. The goal, the NAIC says, is to make the assessment process more collaborative and break down “silos” within the regulator.
The Investment Analysis (E) Working Group will focus specifically on higher risk investments. It will look at both new and legacy insurers to understand how their portfolios are evolving and to ensure they aren’t overly invested in high risk assets. The Securities Valuation Office and Structured Securities (E) Working Group will focus primarily on maintaining reporting compliance for securities. The Credit Rating Provider (E) Working Group will be responsible for overseeing the updated procedures for challenging the credit rating of a given security and implementing internal credit ratings for fixed income securities in insurance portfolios.
As insurance investors digest these changes it’s likely scenario analysis will play a bigger role in order to keep portfolios from running afoul of regulators. David Phillips, CIO of Axis Capital said at AIF’s Insurance Investor Symposium and Forum in June, that in some ways scenario analysis is more important than trying to define specific asset class strategies. “We’re looking at everything that is not investment grade fixed income as a risk asset,” he says. “So within that framework we are focused more on ‘what are we comfortable with in a given scenario?’ How does this match with our risk parameters?”
Refinements ahead for risk-based capital
Alongside NAIC’s changes to its supervisory working groups, in the September meeting regulators pushed forward with discussions on how to refine the risk based capital framework for structured securities, health care and life insurance. Each of these groups are still in the discussion and comment phase but changes could be on the horizon for next year.
At the AIF Insurance Investor’s Symposium and Forum in June, Ammon Levy, CEO of Bridgeway Analytics, the company working with the NAIC on updates to its risk based capital framework says that while there are some complex and/or riskier credits that may see higher capital charges as a result of the changes, the bulk of insurance portfolios are invested in credits that fall within acceptable risk parameters and will be able to avoid those charges under the new framework.
“Ultimately, where you are going to see a shift is in capital markets because insurers are such a massive player in that space,” Levy says. “You’re going to see an evolution in the sorts of structures that are being formed in order to conform with what insurers need to support their investment strategies.”
Each of these topics and more will be up for discussion at the 2025 AIF Institute Fall Insurance Symposium, held in New York on October 16.
