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On June 23, 2026, the NAIC Risk-Based Capital Investment Risk and Evaluation (E) Working Group (RBC IRE WG) took the next major step in what has thus far been a four-year project and voted to adopt new C-1 risk-based capital (RBC) factors for life insurers’ investments in collateralized loan obligations (CLOs). If approved on June 30 by the Capital Adequacy (E) Task Force and on July 8 by the Financial Condition (E) Committee of the NAIC, the new RBC factors will become effective with the December 31, 2026 RBC calculation. For background, please refer to our May 7 article NAIC Working Group Continues to Discuss Proposed Changes to RBC Factors for CLOs | Insights | Mayer Brown.
At the June 23 meeting, the RBC IRE WG took the following actions:
- Adopted the set of CLO RBC factors that had been recommended by the American Academy of Actuaries (Academy) and exposed on May 6 for comment as Option 2 (see table below).
- Modified one of the factors pursuant to the Academy’s most recent recommendation: the NAIC 1.G factor (A3/A-) was reduced from 1.743% to 0.966% (pre-tax).
- Voted to apply the new factors (other than the higher factors based on tranche thickness) not only to broadly syndicated loan (BSL) CLOs but also to middle market (MM) CLOs, collateralized debt obligations (CDOs) and collateralized bond obligations (CBOs).
- Voted to apply the higher factors for CLO tranches rated NAIC 2.C (Baa3/BBB-) or below that have a thickness of 4% or less only to BSL CLOs, not to MM CLOs, CDOs, or CBOs. (Thickness is to be measured as of the most current trustee reports.)
- Voted to maintain the 45% RBC factor for residual interests in CLOs, CDOs and CBOs (as recommended by the Academy).
Comparison of Current and New Life RBC Factors (Pre-Tax)
| Designation | Rating | Current | New |
|---|---|---|---|
| 1.A | Aaa/AAA | 0.158% | 0.036% |
| 1.B | Aa1/AA+ | 0.271% | 0.048% |
| 1.C | Aa2/AA | 0.419% | 0.048% |
| 1.D | Aa3/AA- | 0.523% | 0.048% |
| 1.E | A1/A+ | 0.657% | 0.168% |
| 1.F | A2/A | 0.816% | 0.168% |
| 1.G | A3/A- | 1.016% | 0.966% |
| 2.A | Baa1/BBB+ | 1.261% | 2.175% |
| 2.B | Baa2/BBB | 1.523% | 3.245% |
| Designation | Rating | Current | New: Thickness >4% | New: Thickness ≤4% |
|---|---|---|---|---|
| 2.C | Baa3/BBB- | 2.168% | 3.281% | 15.048% |
| 3.A | Ba1/BB+ | 3.151% | 15.132% | 26.899% |
| 3.B | Ba2/BB | 4.537% | 25.156% | 36.923% |
| 3.C | Ba3/BB- | 6.017% | 27.981% | 39.748% |
| 4.A | B1/B+ | 7.386% | 31.298% | 43.065% |
| 4.B | B2/B | 9.535% | 42.308% | 54.075% |
| 4.C | B3/B- | 12.428% | 56.875% | 68.642% |
| 5.A | Caa1/CCC+ | 16.942% | 57.837% | 69.604% |
| 5.B | Caa2/CCC | 23.798% | 66.346% | 78.113% |
| 5.C | Caa1/CCC- | 30.000% | 85.120% | 96.887% |
| 6 | Below Caa2/CCC- | 30.000% | 92.560% | 92.560% |
When the RBC IRE WG was established in January 2022, it was given a broad mandate to focus on the RBC treatment of asset-backed securities (ABS), not only CLOs, but also collateralized fund obligations (CFOs) and other securities carrying similar types of “tail risk.” One of the key decisions for the RBC IRE WG now that it has completed the CLO phase of its mandate will be how to leverage the Academy’s quantitative analysis and the Working Group’s decisions relating to CLOs to address other ABS asset classes.
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