Federal Updates

The Federal Reserve released its November 2025 Financial Stability Report earlier this month. The report identifies a handful of vulnerabilities affecting U.S. financial system stability:

• Asset valuations: The report cites valuation pressures resulting from asset valuations that remain elevated relative to historical benchmarks.
  
• Borrowing by businesses and households.
  
• Leverage in the financial sector: The report emphasizes that, as of the first quarter, hedge fund leverage was as high as it has been since comprehensive data has been collected, and life insurers’ leverage was in the upper quartile of its historical distribution. Meanwhile, property and casualty insurers’ leverage remains at historical lows. In addition, the report highlights the robust growth of bank lending to other financial entities, including private equity and private credit.
  
• Funding risks: In the report’s discussion of short-term funding risks, it identifies uninsured deposits, federal funds, securities lending, and funding-agreement-backed securities as instruments that have experienced notable stress incidents (primarily during the 2007–2009 financial crisis).

In a related speech on November 20, 2025, Federal Reserve Governor Lisa Cook remarked on private credit. She (1) characterized the recent auto sector failures as outliers and added that she does not believe private credit is a financial stability threat; (2) acknowledged the potential for private credit to enhance financial stability and expand economic growth; and (3) remarked that she does not see the potential for private credit to contribute to an unexpected credit crunch, even though increased complexity and interconnection with leveraged financial entities can create channels for unexpected losses in private credit to spread to the broader financial system.

On November 19,, the Office of Financial Research (OFR) released its 2025 Annual Report to Congress. The report, which analyzes financial stability risks in the United States, concludes that financial stability vulnerabilities associated with insurance companies are modest and little changed over the past year; nevertheless, continued monitoring of such vulnerabilities is worthwhile. On the life side, life insurers’ insolvency risk depends on the risk embedded in their investment portfolios and their leverage. While life insurers’ credit risk is smaller than that of banks, it has been increasing for more than a decade.

On November 18, the House Financial Services Committee held a hearing on the FDIC deposit insurance framework. While various legislative proposals were posted for the hearing, the broad discussion on potential changes and their merits did not point to a specific legislative path forward. An overview can be found in a committee press release.

The committee also released its December hearing schedule. Hearings of note include:

• “Oversight of Prudential Regulators” (December 2, 10:00 a.m. ET)
  
• “From Principles to Policy: Enabling 21st Century AI Innovation in Financial Services” (December 10, 10:00 a.m. ET)

  Staff Contact - Sean McKenna

NAIC Updates

On November 20, 2025, Commissioner Houdek (WI-Chair) updated the Financial Condition Committee on the NAIC’s timeline for its workstream on RBC charges for collateralized loan obligations (CLOs) (see Attachment G of the Meeting Materials). The timeline contemplates parallel activity regarding the structural and factor changes that likely will be required to implement the American Academy of Actuaries’ comparable attributes approach. The timeline tracks the Capital Adequacy Task Force’s typical amendment process and seems to treat the NAIC’s Structured Securities CLO Model as a fallback approach if the Academy work is not completed in time. Regulators have already delayed the effective date of this work twice, so there is a strong desire to select one of the two approaches for year-end 2026 reporting.

The committee also discussed feedback on an alternative approach to the treatment of combo reinsurance arrangements (those with a coinsurance and yearly renewable term (YRT) component). The initial proposal was adopted by the Statutory Accounting Principles Working Group (SAPWG) and its parent task force at the Summer National Meeting, but it was delayed at the committee level for commissioners to learn more about the topic. An alternative approach was put forth by Commissioner French (OH) at last month’s meeting.

Prominent financial regulators from California, Iowa, Kansas, Minnesota, Wisconsin, and Virginia submitted a detailed letter urging the committee to accept the original approach adopted by SAPWG at the Summer National Meeting, providing a detailed overview of these transactions and outlining a number of concerns with Commissioner French’s proposal. Several regulators suggested that any deviation from SAPWG’s adopted approach could be handled through a permitted practice, thus providing notice to interested parties and regulators that there has been a deviation from the accounting principles. This item will be up for adoption at the Fall National Meeting, and it seems likely that the original proposal will be adopted.

Finally, the committee sent referrals to the IT Examination Working Group, the Financial Analysis Solvency Tools Working Group, and the National Treatment and Coordination Working Group related to enhancing cybersecurity guidance. The referrals encourage those groups to consider potential enhancements to regulatory guidance related to cybersecurity issues in Form A reviews, other holding company analysis, and reliance on service providers.

The Capital Adequacy Task Force met on November 19 in lieu of meeting at the Fall National Meeting next month. Most notably, the “RBC preamble” item was removed from the task force’s agenda shortly before the call. According to Mike Yanacheak (IA-Chair), the task force was essentially told to stand down on this issue while the commissioner-level RBC Model Governance Task Force considers the purpose and use of RBC.

The task force also took the following actions:

• Adopted its working agenda (including for its working groups).
  
• Received a referral from the Statutory Accounting Principles Working Group related to collateral loan reporting. The Life RBC Working Group has a conceptual exposure out for comment right now on this topic; given the small amount of collateral loan investment by P&C and health companies, regulators determined that there is no need to amend those formulas at this time.
  
• Heard an update on the RBC treatment of Securities Valuation Office–designated investments for P&C companies. Regulators and NAIC staff continue to discuss a proposal by PineBridge Investments that would allow non-life insurers to utilize SVO fund designations for RBC purposes for mutual funds and private funds. Additional analysis is ongoing and will be presented on an aggregate basis in the future.

The Financial Examiners Handbook Technical Group adopted several revisions to the Financial Condition Examiners Handbook. Most notably, the changes provide guidance regarding departments’ use of AI tools within examinations. Interested parties raised concerns related to insurers’ lack of knowledge about how AI tools will be used, contractors’ use of AI, confidentiality, and regulators reviewing and validating AI outputs. Technical group leadership incorporated proposed changes related to contractors’ use of AI and confidentiality and clarified language related to reviewing and validating AI outputs. The changes were not circulated to the technical group members (or other stakeholders) in advance of the meeting but were adopted nonetheless.

Several regulators recognized a need to update language regarding regulators’ use of AI in examinations as the practice becomes more common. There was also a consensus that regulators should talk to their domestics when using AI, but the technical group did not incorporate any such changes into the Handbook. The technical group also adopted amendments reflecting change across the NAIC landscape, including recent statutory accounting changes for Modco/Funds Withheld arrangements, the principles-based bond definition, and AG 55.

The Longevity Risk Subgroup continued discussion of four potential approaches for the treatment of longevity reinsurance in the life RBC formula. Previously, the subgroup requested proposals from stakeholders and received the following:

• American Academy of Actuaries: The Academy recommends a principle-based approach in which the total assets required (TAR) to support liabilities under an appropriate stress scenario is determined, and the capital charge is calculated to be the excess of the TAR over the reserves, subject to a floor of zero. The Academy’s approach would involve projecting future premiums and reinsurance fees; projecting future benefits and expenses using a mortality shock appropriately calibrated; and calculating TAR as present value of shocked future benefits and expenses minus present value of premiums and fees. The C-2 for Longevity Reinsurance risk = maximum {TAR – Statutory Reserve, 0}, and companies would be required to perform this calculation on an annual basis to determine the capital amount. According to the Academy, an appropriate stress scenario should follow the same principles as the stresses developed for current C-2 Longevity: (1) calibrating shocks to the 95th percentile relative to the 85th percentile (standard for reserves), and (2) independence of mortality improvement and mortality level shocks.
  
• ACLI: The ACLI continues to support applying the C-2 factor to the present value of benefits, with an offset credit for future surplus not included in calculated statutory reserves. The ACLI included a draft redline of the Longevity Risk elements and instructions as part of its submission.
  
• Minnesota Department of Insurance (Ben Slutsker): Minnesota proposes using the latest year-end principle-based reserving (PBR) model and calculating the actual Present Value under scenario 12, using the net asset earned rate to discount that amount. The Minnesota approach would take that present value amount and shock it by a mortality shock calibrated to CTE-90. The factor would be developed by dividing that amount by the latest year-end statutory reserve held for these contracts. Note that Minnesota did not provide any additional detail on its original proposal on the call.
  
• New Jersey Department of Banking and Insurance (Seong-Min Eom): The New Jersey method is to develop the Life RBC C-2 Longevity Risk factor for Longevity Reinsurance, as the product of quantities Factor and Base. Additional details are available here. New Jersey also provided a redline of the current Longevity Risk elements and instructions.

For this work to be completed for year-end 2026 reporting, the proposal needs to be finalized in March. This item likely will be exposed at the Fall National Meeting next month and will include multiple proposals.

The Big Data and Artificial Intelligence (AI) Working Group met on November 19 to update attendees on its plans for the extended Fall National Meeting session, revisions to the AI Systems Evaluation Tool, and the vision for the pilot in 2026. Key takeaways included:

• December 7 Meeting: During the Fall National Meeting, the working group will devote roughly three hours to discussing the four exhibits during a line-by-line review. The discussion will inform the next version of the tool (version 3), which Commissioner Humphreys (Chair-PA) would like to expose and finalize soon after the meeting. The finalized version will be used in an early 2026 pilot.
  
• Revisions to the AI Systems Evaluation Tool: Overall, the updates (1) clarify that the tool is optional and can be tailored by regulators; (2) clarify that the tool relies on company assessments of risk, but regulators may request additional information; and (3) align definitions with the NAIC AI Model Bulletin. Regarding scope, Commissioner Humphreys explained that regulators will continue to decide which companies are subject to a market conduct or financial examination through the existing regulatory process in the respective handbooks. Once a regulator decides to examine a company, the regulator will then decide whether to use this tool. The Meeting Materials provide an overview of the changes to each of the exhibits, which were summarized by their lead drafters—Amanda Theisen (IA), Diana Sherman (PA), and Mary Block (VT)—during the call.
  
• Pilot Specifics: Commissioner Ommen (Co-Vice Chair-IA) explained that states will volunteer to participate in the pilot and may use part or all of the tool on a mix of financial and market conduct exams. They will then report on their experiences to inform future versions as part of an evolutionary process. Commissioner Humphreys further explained that the pilot will help to identify gaps where further work/legislation may be needed.
  
• Collaboration with Other NAIC Groups: Working group leadership reported that both the Financial Condition (E) Committee and Market Regulation and Consumer Affairs (D) Committee have received regular updates on this work. Commissioner Humphreys envisions the tool will remain under the jurisdiction of the working group through the pilot phase and then be sent to the E and D Committees (and potentially the actuarial groups).

On November 20, the Life Insurance and Annuities (A) Committee adopted its 2026 proposed charges, which create two new working groups under the A Committee: (1) the Annuity Buyer’s Guide Working Group, which will review and revise the NAIC Buyer’s Guides for Deferred Annuities (last revised in 2013); and (2) the Life Insurance and Annuities Illustrations Working Group, which will carry on the Life Actuarial Task Force’s (LATF) work on life insurance and annuity illustrations beyond actuarial considerations. Ben Slutsker (MN) will chair the Life Insurance and Annuities Illustrations Working Group, and membership will consist of both A Committee and LATF members. In addition, the committee adopted LATF’s 2026 proposed charges, the 2026 Generally Recognized Expense Table (GRET), and changes to AG 49-A (the Application of the Life Illustrations Model Regulation to Policies with Indexed-Based Interest) related to the use of certain indices in illustrations.

The Market Regulation Certification Working Group recently discussed provisional certification applications as part of the implementation of the NAIC’s voluntary market regulation certification program. The working group has received 22 self-certifications thus far. Each jurisdiction that submits a self-certification report is provisionally certified, and the working group will provide feedback on each self-certification received. The working group will discuss full certification at the Fall National Meeting.

In addition, the working group discussed a new market analysis certification requirement (see Attachment 2) of a minimum number of market analysis activities. The working group agreed that the definition of “market analysis activities” should include baseline analysis, Level 1 review, Level 2 review, and general market analysis projects. Members supported a minimum requirement of 30 market analysis activities and making this requirement secondary, as some jurisdictions have limited market analysis staff. The working group will vote to finalize this new certification requirement at the Fall National Meeting.

  Staff Contact - Sean McKenna

AI Activity

The White House is working on an executive order that would task the Department of Justice with challenging state AI laws, “including on grounds that such laws unconstitutionally regulate interstate commerce, are preempted by existing Federal regulations, or are otherwise unlawful in the Attorney General’s judgment….” The current draft also would enlist the Department of Commerce, Federal Communications Commission, Federal Trade Commission, and other federal agencies in the effort to replace conflicting state laws with a “minimally burdensome national standard.” (There is no word yet on what a national standard might entail, or how it might impact the insurance industry.) In addition, the White House is reportedly working with Republican lawmakers on a potential moratorium on state regulation that could be included in the National Defense Authorization Act. This summer, the Senate overwhelmingly rejected one such proposal that was included in the Big Beautiful Bill.

  Staff Contact - Sean McKenna

International Developments

On November 21, 2025, the International Association of Insurance Supervisors (IAIS) published three documents that update ComFrame to incorporate insurance capital standard (ICS) related elements: Insurance Core Principle (ICP) CF 9.4 on supervisory reporting; ICP CF 20.10 on public disclosure; and a new paragraph 47 of the ComFrame Assessment Methodology. The updates to ICPs 9 and 20 reflect the development of ICS-related supervisory reporting and public disclosure requirements. The new paragraph 47, within the ICP and ComFrame Introduction, indicates that the ICS Implementation Assessment Methodology (1) is a specific, supplementary methodology within the ComFrame assessment framework; (2) covers the implementation assessment of the ICS-related ComFrame standards in ICPs 9 and 20; and (3) sets out how the specificities of the final aggregation method (AM) should be considered. Comments are due by February 5, 2026, and a public background session is scheduled for December 11 at 9:00 a.m. ET.

In addition, the IAIS published its final Issues Paper on structural shifts in the life insurance sector on November 18, informed by extensive stakeholder feedback during the draft’s consultation period. Overall, the final paper presents a somewhat more balanced view of the “structural shifts” and jurisdictional approaches to supervision. The paper’s conclusion continues to be that the risk to global financial stability from these structural shifts is relatively small. The IAIS does not intend to make any changes to the ICPs as a result of the structural shifts but will consider enhancements to supervisory or supporting material.

In other international news, the Financial Stability Board (FSB) held its plenary meeting last week, during which members discussed the global economic outlook and the FSB’s agenda for 2026. Members discussed financial sector vulnerabilities such as stretched asset valuations in AI-related securities and the potential for sharp market corrections; the use of highly leveraged trading strategies by nonbank entities; and the growth, complexity, and opacity of private credit markets and their interconnectedness to the broader financial sector. Members also discussed the IAIS’ Holistic Framework, which is under assessment by the FSB as part of the three-year review cycle, and reportedly “welcomed the FSB’s experience” utilizing it, likely indicating a favorable review outcome.

Finally, Plenary approved its 2026 work program and key G20 deliverables (historically published in January), which include the following:

• Further assessment of private credit vulnerabilities and interlinkages as well as work to address data gaps
  
• Strategic review of the FSB’s crisis preparedness activities (proposal approved by Plenary) and continued efforts to improve implementation monitoring of resolution standards in all sectors
  
• Publication of the annual list of insurers subject to resolution planning standards and a consultation on recovery and resolution planning requirements (both approved by Plenary)
  
• Phase two of the Implementation Monitoring Review led by Randy Quarles (following the interim report published last month)
  
• Further work to promote the FSB’s recommendations on liquidity management by open-ended funds and on nonbank financial intermediary (NBFI) leverage, which includes work to enhance disclosure by nonbank entities to their prime broker counterparties
  
• Addressing data gaps related to leveraged trading strategies in sovereign bond markets through the Nonbank Data Task Force
  
• Examination of certain jurisdictions’ efforts to modernize their financial regulation and supervision frameworks

  Staff Contact - Sean McKenna

Privacy Updates

The U.S. Securities and Exchange Commission announced it will begin examining broker-dealers and investment advisers for compliance with a new rule requiring them to report data breaches to their customers. The rule, which was adopted last year, mandates that investment advisers and broker-dealers put procedures in place for detecting data breaches and notifying customers when their personal information may have been compromised. The examinations are intended to determine whether firms have programs in place designed to detect and respond to breach of customer information.

  Staff Contact - Sean McKenna