What’s next for the rules that govern insurers’ investments: Developments from the NAIC’s 2024 Spring National Meeting

Synopsis:

Regulators continued their efforts to refine the rules to align with insurers’ shifting investment strategies more closely at the NAIC 2024 Spring National Meeting in Phoenix. At its core is an aspiration of achieving “equal capital for equal risk,” which is no easy task considering the framework's interconnected components that govern insurers’ investments. There were significant developments on multiple fronts, including:

• Changing the classification and valuation of investment across the categories of insurers’ investments whose risk characteristics can vary significantly. This includes the debt and residual interests of asset-backed securities (ABS). 
• Addressing concerns over ‘blind reliance’ on agency ratings in NAIC Designations, which help oversee hundreds of thousands of debt instruments worth $trillions of insurers' debt investments. Designations aspire to consistently rank order credit risk, which is argued to be challenged by agencies that use different methodologies and standards.
• Differentiating capital for structured assets and ABS's residual interests, including investment vehicles. While structured products are argued to provide attractive risk-adjusted returns, the products are complex, and establishing the appropriate capital requirements for such products requires a deep understanding of their nuanced risk-mitigating features and performance. 
• Moving forward with the Financial Condition (E) Committee’s long-term aspirations of modernizing the NAIC’s investment oversight framework.

This report reviews these recent developments, their potential implications for investment strategy, and what might happen next.

About the Authors

• Amnon Levy is the CEO of Bridgeway Analytics and led the redesign of the C-1 factors on behalf of the NAIC and ACLI in 2021
• Brett Manning is a Senior Predictive Analytics Specialist at Bridgeway Analytics
• Nitsa Einan is Bridgeway Analytics’ Chief Legal and Product officer
• Douglas Dwyer is a Senior Predictive Analytics Specialist at Bridgeway Analytics

Read the full report