AG 53, Eighteen Months Later: Are We Getting the Alignment We Asked For?

Stewart Foley, CFA

In April 2025, I wrote about AG 53 as an opportunity for alignment, arguing that success would come down to three things: consistency, materiality, and coordination.

Eighteen months in, we now have enough experience to ask a sharper question: Are we getting there? My answer is yes, though the conversation has grown considerably more sophisticated.

From Reporting Assets to Understanding Risk

The biggest shift since our first piece: regulators now have real filings to work from, not just a framework. They've moved past asking what insurers should report and are starting to signal what matters within those reports.

The Valuation Analysis Working Group's reviews have expanded beyond unusually high net-yield assumptions into territory familiar to anyone running a general account: cliff risk, illiquidity risk, and Level 3 valuation. These are investment issues, not just regulatory ones.

The operative question is shifting from “What is this asset?” to “How does it behave when things go wrong?” That's the better question.

The Downside Matters

Regulators have also leaned into downside scenarios for higher-yielding, illiquid assets, even when those scenarios don't end up being reserve-adequate. That's constructive. An investment that looks reasonable under expected conditions can behave very differently once liquidity dries up or cash flows arrive late. That matters more as insurers lean further into private credit and structured assets, where risk often isn't captured by a rating or an asset-class label.

Worth saying plainly: complexity itself isn't the risk. Private assets and less liquid investments serve real purposes, diversifying portfolios and giving insurers exposure they're uniquely positioned to hold given how long-dated their liabilities are. The goal was never to discourage complexity; it's to understand it, which means regulators need to tell a well-understood complex asset from one whose economics only work if certain assumptions survive stress, and insurers need the internal expertise to make that same call themselves.

The Reporting Is Getting Better, Too

The NAIC's year-end 2025 AG 53 guidance is more evidence the learning is real: more consistent reporting, more detail on Schedule BA investments, feeder funds, collateral loans, and structured notes, and a requirement to explain how investment departments and asset managers interact, which deserves more credit than it gets.
Asset adequacy testing can't sit entirely inside the actuarial function when the real questions are about how investments behave economically. The actuary knows the liabilities. The investment team knows the assets. The asset manager knows the structures. AG 53 is increasingly where they meet, which is the alignment we were hoping for.

The Broader Regulatory Direction Is Becoming Clear

AG 53 shouldn't be read in isolation. At its 2026 Summer National Meeting, the NAIC adopted changes to the C-1 risk-based capital framework for CLOs, and regulators are separately examining Level 3 valuation and embedded asset-liability-management risk in structured securities. Different purposes, but together they point to where insurance investment regulation is headed. It's moving closer to the asset's actual economics.

Ratings, classification, and capital treatment still matter, but regulators increasingly want to know what's underneath those labels: What produces the yield? Where does the liquidity sit? What happens if the underlying assumptions don't hold? Those are questions every CIO should already be asking.

A New Standard for Asset Managers

AG 53 isn't only an insurer issue. Asset managers should assume the bar for explaining an investment just got higher. Yield, spread, and rating aren't enough anymore. They need to help insurers understand liquidity, downside behavior, and valuation methodology, which means genuinely understanding the insurance balance sheet. The best managers won't wait to be asked; they'll build that into the investment process itself, which helps insurers and managers who actually understand what they're selling.

So, Are We Getting the Alignment We Asked For?

My answer is yes, though not perfectly or completely. There are still legitimate debates ahead about implementation, consistency across states, and where regulatory scrutiny should start and stop, and those debates are healthy.

But eighteen months in, AG 53 looks less like a reporting requirement and more like part of a broader push to improve how the industry understands investment risk. Insurance investing has changed substantially over the past decade: the line between public and private markets has blurred, and the reach for incremental yield has pushed portfolios into territory that demands far more analysis than a traditional bond portfolio ever did. Regulation was always going to catch up.
The best outcome isn't a system where regulators tell insurers what they can own. It's one where insurers can show they understand what they own, how it behaves under stress, and whether they're being paid enough for the risk. Eighteen months ago, I called AG 53 a clear opportunity for alignment. Today, that opportunity is starting to look real, and the industry should keep leaning into it.

For additional background on this topic, read our original article, “AG 53: A Clear Opportunity for Alignment,” published in April 2025.

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