What’s Next for the Rules that Govern Insurers’ Investments: Developments from the NAIC’s 2024 Summer National Meeting - Report

At the NAIC 2024 Summer National Meeting in Chicago, regulators advanced their initiatives to refine investment guidelines in response to insurers’ evolving strategies. Central to these efforts is better aligning the rules with the underlying differentiated economic risks across asset classes—a complex challenge given the significant variation in their risk characteristics and the intricate relationship between the statutory and risk-based capital frameworks. Key developments included:

• Classification of investments. The principles-based bond definition has been central to revising the classification of investments across varying characteristics, such as the debt of or direct investments in funds (e.g., private or SEC-registered funds).
• Assigning Designations. Significant concerns have been raised over the 'blind reliance' on agency ratings in NAIC Designations, which monitor insurers’ debt portfolios valued in the trillions. These concerns have led to the NAIC designing procedures extending staff discretion over Designations. The challenge lies in ensuring consistent credit risk rankings despite differing methodologies and standards used by rating agencies and the increasing use of private ratings, which lack market oversight due to their confidential nature.
• Capital differentiation. Differentiating capital requirements for asset classes that exhibit differentiated risks, including investment vehicles and the debt and residual interest of asset-backed securities.
• Modernizing investment oversight. Progressing with the Financial Condition (E) Committee’s long-term goal 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 

Read the Full Report Here