|
NAIC Informational Update
Proposed Changes to NAIC Base Risk Factors
To: Presidents, CEOs, Accountants, CFOs, Actuaries, Investment Officers, Associate Members
Date: July 21, 2015From: Melanie Hinds, Director, Advocacy and Policy
As you may be aware, the NAIC is considering expanding the current corporate bond NAIC Designations structure from 6 categories to 14, and modifying the corresponding RBC C1 Factors. This change is intended to apply only to corporate bond investments of life and fraternal insurers, but there is belief that it will be expanded to all bonds that insurers hold for investment purposes once the proposal is issued by the NAIC's Investment Risk-Based Capital Working Group. This issue is expected to be discussed at the 2015 NAIC Summer National Meeting in Chicago in August. The implementation date hasn't been explicitly discussed, but the earliest it would be reasonably expected is 2017.
Although some factors decrease, most factors increase and the expected impact to RBC will be higher capital for bond risk. The increase could be significant for those fraternals holding bonds in the new NAIC Designations. According to the following table, the highlighted items are the new NAIC Designations that are expected to have the most impact to fraternals as the factors are expected to increase 50% - 300% (excluding adjustments for taxes and covariance.)
The NAIC Investment Risk-Based Capital Working Group has a conference call scheduled on Friday, July 24 at 11:00 am Eastern/10:00am Central, to continue discussions on this issue. Click here for a meeting agenda and other materials for this call.
The NAIC Investment Risk-Based Capital Working Group will be meeting on August 15, 2015, in Chicago to consider possible action on this matter. This link provides information on a report prepared by the NAIC Capital Markets Bureau on industry asset allocations of invested assets. As of December 31, 2013 and 2014, the fraternal industry had 80% of their invested assets in bonds. The Alliance is working with other members that have been monitoring this issue and will be following the activity of the Investment Risk-Based Capital Working Group during the July 24th conference call and the August NAIC meeting in Chicago. We will provide updates following both events and will continue to monitor activity in this area should an opportunity to advocate on behalf of our members who may be significantly impacted present itself. Click here for a tentative agenda (as of 7/20/15) for the August NAIC meeting.The Alliance encourages you to determine how this change will impact your RBC calculation.Please feel free to distribute this Update to others within your society. If you have any questions, please contact Melanie Hinds ( mhinds@fraternalalliance.org) or Tip Tipton (tip.tipton@thrivent.com). Special thanks to Mr. Tipton for assisting the Alliance in monitoring this issue.
|
|
|
|
