Update on Potential Reinsurance Risk-Based Capital and Reporting Changes

As we reported here, the Financial Condition (E) Committee (the “(E) Committee”) of the National Association of Insurance Commissioners (the “NAIC”) has two projects underway that could result in increased capital and regulatory disclosure requirements for certain reinsurance transactions. First, in August 2026, the (E) Committee sent a two-part referral to the Life Risk-Based Capital (E) Working Group (the “Life RBC WG”) to (1) develop a reinsurance recapture risk-based capital (“RBC”) factor for ceded reserves and modified coinsurance balances outside reciprocal jurisdictions, reflecting the additional capital needed if recapture occurs; and (2) align the life risk based capital reinsurance credit-risk methodology with the property and casualty RBC approach, in order to reflect counterparty risk for reinsurers with lower financial strength ratings.

The Life RBC WG is currently focused on part 1 of the referral. At a meeting on October 29, 2026, the (E) Committee shared a letter with additional background for the requested recapture factor. The letter states that review of insurer reports pursuant to Actuarial Guideline LV (“AG 55”) indicated that “approximately 70% of life insurers ceding to non-reciprocal jurisdictions have portfolios of comparatively riskier assets supporting very generous annuity guarantees that raise significant concerns about the ability to pay future claims under reasonable economic scenarios.” The (E) Committee has posted its letter here for interested party comment until November 12, 2026. The Life RBC WG plans to release a formal proposal in advance of the upcoming NAIC Fall National Meeting. The proposal is expected to involve a factor approach where a new RBC charge would be applied to ceded reserves and modified coinsurance balances to approximate the additional capital required upon recapture (assuming a 100% probability of recapture), reduced for overcollateralization. The Life RBC WG indicated that it intends to turn to part 2 of the referral shortly, since the (E) Committee has prioritized both of the reinsurance-related RBC changes for year-end 2027 implementation.

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