NAIC Financial Condition (E) Committee Approves RBC Changes

On July 8, 2026, the Financial Condition (E) Committee (“E” Committee) of the National Association of Insurance Commissioners (NAIC) adopted three proposals that had previously been adopted by its Capital Adequacy (E) Task Force (CAD TF).

NAIC rules provide that in order to become effective for the year-end RBC calculation, RBC changes need to be adopted by the CAD TF by June 30.  In many cases, the CAD TF action is considered final, but certain major RBC changes are also reviewed and approved “up the chain” by the “E” Committee, and that was the case for the following three proposals:

• The “E” Committee approved a revised Risk-Based Capital (RBC) Preamble (Attachment A to the meeting materials)
• The RBC Preamble is the authoritative summary of the history, purpose, and uses of the NAIC’s RBC system and the role of the CAD TF in administering it.
• The revised RBC Preamble had been adopted by the CAD TF and the Risk-Based Capital Model Governance (EX) Task Force at a joint meeting on June 18, as the culmination of a multi-year process.
• The revised RBC Preamble reaffirms that the purpose of RBC is to help state insurance regulators identify weakly capitalized insurers and take corrective action, and not to rank insurers generally or to make comparisons between adequately capitalized insurers.
• The revised RBC Preamble does not include some of the language in prior drafts that would have discouraged the public dissemination of insurers’ RBC ratios, but notes that state laws generally prohibit insurers and their agents from using RBC ratios to compare competitors.

• The “E” Committee approved new Life RBC factors, effective December 31, 2026, for collateralized loan obligations (CLOs), collateralized bond obligations (CBOs) and collateralized debt obligations (CDOs) (Attachment B to the meeting materials).
• The new Life RBC factors had been adopted by the CAD TF on June 30, 2026.
• Note that the new Life RBC factors for CLOs will apply to both broadly syndicated loan (BSL) and middle market loan (MM) CLOs, although the additional RBC charge for thinner tranches will only apply to BSL CLOs.
• For details, see our June 23 article The NAIC RBC Investment Risk and Analysis (E) Working Group Has Made Its Decision on New Life RBC Factors for CLOs.
• The “E” Committee declined a request from interested party commenters to direct the CAD TF and its Risk-Based Capital Investment Risk and Evaluation (E) Working Group (RBC IRE WG) to commission analytical work on MM CLOs by the American Academy of Actuaries to validate or recommend changes to the RBC factors for MM CLOs in time for the 2027 RBC calculation.  Instead, the chair of the “E” Committee stated that the chair of the RBC IRE WG would provide details on the RBC IRE WG’s next projects at the NAIC Summer National Meeting in August.
• Property/Casualty and Health RBC factors are not affected.

• The “E” Committee approved new Life RBC factors, effective December 31, 2027, for collateral loans (i) backed by interests in joint ventures, partnerships and limited liability companies and (ii) backed by residual interests (Attachment C to the meeting materials).
• The new Life RBC factors had been adopted by the CAD TF on June 30, 2026.
• For details, see our May 5 article Life Risk-Based Capital (E) Working Group Continues to Discuss RBC Treatment of Collateral Loans and note that the Life Risk-Based Capital (E) Working Group and the CAD TF decided to adopt Option 2.
• Property/Casualty and Health RBC factors are not affected.

At the conclusion of the meeting, the Chair of the NAIC’s Investment Designation Analysis (E) Working Group made an important announcement. He noted that on November 19, 2024, the NAIC had adopted amendments to Part Two of the Purposes and Procedures Manual of the NAIC Investment Analysis Office (IAO) that grant IAO staff the discretion to challenge an NAIC Designation Category assigned to a security through the filing-exempt process (i.e., based on a rating agency rating) if they think it is not a reasonable assessment of investment risk of the security for regulatory purposes.  He noted that although the discretionary challenge process was scheduled to become effective on January 1, 2026, implementation had been delayed because of the time required to modify the NAIC’s technology systems to accommodate the challenge process.  He reported—big news—that the technology modifications have now been completed and accordingly the IAO discretionary challenge process is now operational.