NAIC Updates
California Insurance Commissioner Ricardo Lara announced a public hearing on July 28, 2026, to discuss a proposed Long-Term Solvency Planning Regulation intended to help the California Department of Insurance (CDI) monitor insurer solvency amid climate disasters, cybersecurity threats, AI, and other emerging risks. Written comments are due July 28 and may be submitted by email to [email protected].
The draft text would require all domestic insurers, by January 1, 2028, to assemble and make available to examiners an analysis of their long-term additional capital needs. All domestic insurers also would be required to maintain a current portfolio of data on policyholder risk mitigation technologies, including any analyses of the past and anticipated long-term performance of those technologies or strategies. The CDI would review this material through the confidential financial examination process, which it views as better suited than public surveys to capture sensitive insurer-specific solvency information.
Insurers writing more than $50 million in U.S. direct annual premium across all lines would face additional planning requirements. They would be required to maintain a materiality assessment of emerging risks and opportunities affecting underwriting, investments, or operations, including technology and innovation risks, physical climate risks, transition risks, and other risks likely to become more volatile over the next 20 years. They also would be required to document material risk analyses and mitigation strategies with projections for 2030, 2040, and 2050, including stress testing of forward-looking climate and transition-risk scenarios.
The proposal also would require long-term investment targets and performance metrics tied to climate and transition-risk scenarios, along with descriptions of how insurers will evaluate new insurance products for emerging technologies. Insurers would have to describe how they will develop or procure climate-risk and technology-risk expertise and how that analysis informs future capital needs.
The Department says the proposed rule would supplement existing RBC, ORSA, NAIC, and other solvency tools because those frameworks do not fully capture long-term climate, technology, and other emerging risks.
On a June 18 Life Actuarial Task Force (LATF) call, Fred Andersen (MN) presented initial findings from the first round of Actuarial Guideline (AG) 55 reviews. AG 55, adopted in 2025, evaluates the adequacy of reserves held in support of a ceded block of business. The first filings were due in April 2026 for year-end 2025, and the Valuation Analysis Working Group (VAWG) received filings from approximately 80 U.S. ceding companies representing over 100 treaties. Andersen summarized common issues that have led to follow-up inquiries, noting that recurring topics likely will be incorporated into a guidance document similar to those previously produced for AG 51 (long-term care) and AG 53 (asset adequacy testing of direct business). Key findings include:
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Attribution Analysis: Although an attribution analysis was stated as preferred (but not required) for companies that performed cash flow testing, only about half of companies submitted one. VAWG will request narrative explanations of drivers of reserve decreases from companies that did not submit the analysis.
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Reinsurance with Little or No Reserve Reduction: Where there is no reserve reduction, VAWG will inquire about the rationale for the reinsurance treaty and request confirmation of the reserve held by the reinsurer from the reinsurer’s financial statements.
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Policyholder Behavior/Assumption Sensitivities: Andersen emphasized the importance of testing policyholder behavior that can impact liability duration. Examples include low-interest rate scenarios with lower-than-assumed lapses, rising interest rate scenarios with higher-than-assumed lapses, multi-year guaranteed annuity (MYGA) renewal rate assumptions, and guaranteed lifetime withdrawal benefit (GLWB) election rate assumptions on fixed index annuities.
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Alternative Run: The optional alternative run allows companies to use a higher starting asset amount than the post-reinsurance reserve, but only if excess capital is demonstrated to be available to handle a beyond-moderately-adverse event. VAWG will follow up where this demonstration was not provided.
In response to a question from Director Judi French (OH), Andersen indicated he was generally pleased with the quality of responses and that nearly all companies performed robust cash flow testing, which he characterized as the “driving force” behind the guideline. For the roughly half that submitted attribution analyses, two main justifications for reserve decreases emerged: (1) investment in higher-yielding assets above the corporate bond index used in setting the statutory discount rate, and (2) policyholder behavior assumptions, particularly for fixed index annuities, reflecting that a significant number of policyholders do not elect the most valuable option, contrary to the traditional U.S. statutory assumption of 100% election. Andersen noted that companies fell along a spectrum of conservatism in their assumptions, and VAWG’s follow-up efforts will focus on the less conservative companies.
Andersen indicated that these and potentially other items will be incorporated into a draft guidance document, with the goal of having it ready for discussion at the Summer National Meeting in Columbus and finalized around the end of September.
LATF also received an update from the Society of Actuaries Mortality Improvement Subgroup, which continues its efforts to develop the 2026 mortality improvement scales to be used in VM-20. The subgroup is proposing a slightly different approach than has been used in the past, and they will bring a full recommendation to the full task force next month. Additionally, in developing its recommendation for future mortality improvement (FMI), the subgroup is looking at opioid-related deaths, GLP-1 impacts, cancer incidence at younger ages, and impact of changes in health care.
After years of fits and starts, the Capital Adequacy Task Force and RBC Model Governance Task Force adopted revisions to the RBC preamble (see Attachment C of the linked materials). Most notably, the revisions address disclosure of RBC-related information outside of its intended regulatory purpose. Rather than prohibiting such disclosures (as prior drafts would have), the adopted changes encourage insurers to “provide appropriate contextual information” alongside any RBC disclosure, including a description of RBC’s purpose as a regulatory tool and its limitations for other uses. The guidance notes that the nature and extent of contextual information “should be determined by the disclosing party based on the facts and circumstances and applicable legal requirements.” The revisions also clarify that: (1) RBC ratios are not intended or appropriate as a means to rank insurers; and (2) differences in the risks across life, health, and P&C are reflected in each of the formulas. The ACLI and the American Academy of Actuaries voiced support. Commissioner Godfread (ND) emphasized that adoption of these changes is an important governance development for the NAIC.
On June 15, Carmi Margalit (S&P) presented to the Financial Stability Task Force (FSTF) on S&P’s recent private credit analysis. In response to increasing questions regarding life insurers’ exposure to private credit, S&P conducted a stress test to inform its analysis. The central finding was that private credit does not represent an outsized risk to the life insurance industry; even highly conservative stress assumptions suggest industry capital buffers are sufficient, and private credit stress would likely be absorbed without widespread ratings deterioration. Despite these findings, Margalit said the analysis did not meaningfully shift the tone of financial press coverage, which has remained negative and focused on potential risks. Here are some key points from the discussion:
- Margalit highlighted that the primary risks in private credit arise from limited liquidity and transparency rather than inherent credit quality differences. The analysis used a narrow definition of private credit, focused on privately placed corporate or non-mortgage structured finance securities that are also privately rated.
- The analysis used middle-market lending as a proxy for assets underlying privately placed and privately rated bonds (which S&P acknowledged overstates the actual exposure) of 57 life insurers and simulated downgrades and defaults under varying stress levels. Scenarios included AI disruption and 15%, 20%, and 30% default rates on middle-market loans—with the 30% default roughly double the cumulative default experience of the Global Financial Crisis. In all but the most extreme scenario, only a handful of companies experienced a one-notch decline in S&P’s capital score, which Margalit explained is unlikely to result in a downgrade. Under the 30% default scenario, about half of companies had no impact, less than half declined by one notch, and only two declined by two or more notches.
- Given the liquidity and transparency concerns, Avani Shah (NY) asked what level of increased disclosure would be appropriate. Margalit refrained from making a formal recommendation but emphasized that enhanced disclosure would be beneficial, particularly to address gaps between what is currently reported and what is analytically useful. He highlighted two key areas: (1) clearer classification, noting that existing disclosures (e.g., Schedule D) contain detailed data but do not definitively distinguish between publicly traded, 144A, and purely private assets; and (2) more granular information on whether exposures are traditional investment-grade private placements, structured finance, or fund-related investments, and what assets underpin those structures.
- Some of these concerns will be addressed by the Statutory Accounting Principles Working Group’s recent adoption of Proposal 2025-19, which incorporates a new electronic reporting column to identify private placement securities in the investment schedules and incorporates an aggregate disclosure that details key investment information by type of security (public and private placement type). This new reporting becomes effective for year-end 2026 reporting.
On June 15, the Life Insurance and Annuities (A) Committee heard presentations from consumer representative Dick Weber (Life Insurance Consumer Advocacy Center, or LICAC) regarding (1) unclaimed life insurance benefits and (2) indexed universal life (IUL) illustrations.
Unclaimed Benefits: Weber and Kathy Belfi (KB Regulatory Solutions LLC) presented on the deterioration of the Social Security Administration’s (SSA) Death Master File (DMF), stating that it no longer reliably identifies deaths. Once capturing approximately 95% of deaths, the DMF now captures an estimated 16%, largely due to data restrictions implemented by the SSA in 2011. This has undermined the effectiveness of the NCOIL Model Unclaimed Life Insurance Benefits Act, which relies in part on DMF matches to establish “knowledge of death.” Combined with inconsistent state adoption and variation in requirements, the presenters raised concerns about uneven consumer protection and increased risk of unpaid or escheated benefits. They advocated for the NAIC to develop a model requiring life insurers to search additional data sources (e.g., state vital records, third-party data), standardized validation protocols, annual reporting metrics, tighter timeframes for locating beneficiaries and paying benefits, and monthly documentation of searches.
IUL Illustrations: Weber’s presentation argued that IUL illustrations commonly rely on constant, non-guaranteed assumptions (e.g., crediting and cap rates), creating overly optimistic projections that fail to reflect real-world variability. Using stochastic modeling, he showed that policies appearing viable under these assumptions often have low probabilities of success and high lapse rates, particularly when modest changes in cap rates are introduced. Weber emphasized that these illustrations obscure key risks and costs, including policy lapse risk, tax consequences upon lapse, and the impact of fees and carrier-controlled pricing elements. He expressed concern that consumers—and often agents—do not fully understand these dynamics, and that agents with fiduciary duties may be relying on insufficient tools. Weber recommended modernizing the regulatory framework to better reflect variability and risk, including incorporating stochastic analysis; improving disclosures; and transitioning to interactive, scenario-based tools that more effectively convey how policies perform under different conditions.
Commissioner Ommen (Chair, IA) indicated the issue would be revisited at a future meeting, potentially in Columbus, and signaled that further work would likely proceed through the Life Insurance and Annuities Illustrations Working Group following their annuity-related work.
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