Regulatory Update: National Association of Insurance Commissioners Summer 2025 National Meeting

AG 55 was developed by the Life Actuarial (A) Task Force (LATF) to address regulatory concerns that U.S. life insurers may be entering into reinsurance transactions that materially lower the total asset requirement (the sum of reserves and capital) in support of their asset-intensive business and thereby facilitate capital releases that prejudice the interests of policyholders. AG 55 is intended to address sufficiency of reserves and the quality of assets supporting such asset-intensive reinsurance transactions and provide U.S. state regulators with the ability to have more transparency into reserves and assets supporting ceded business.

AG 55 applies to all life insurers with (a) asset-intensive reinsurance transactions ceded to an assuming reinsurer that is not required to submit a VM-30 memorandum to U.S. state regulators in transactions established on or after January 1, 2016 (or January 1, 2020, for certain nonaffiliated transactions), where the transaction meets certain size thresholds set forth in AG 55 or (b) asset-intensive reinsurance transactions that are not required to submit a VM-30 memorandum to U.S. state regulators, regardless of transaction establishment date, where, in the judgment of the ceding company’s appointed actuary, there is significant reinsurance collectability risk.

While a ceding company’s domestic regulator may provide an exemption from cash-flow testing in certain circumstances, an exemption will not be permitted where (a) the assuming reinsurer is an affiliate of the ceding company (as defined under the NAIC Insurance Holding Company System Regulatory Act), (b) greater than 25% of the assuming reinsurer’s reserves have been assumed from the ceding company, or (c) the ceding company or entities in the ceding company’s group own more than 1% of the assuming reinsurer.

The guideline also establishes expectations for the type of analysis required. For higher-risk transactions, full cash-flow testing of postreinsurance reserves is required, reflecting regulators’ focus on stress-testing the durability of reserves under a range of economic conditions. For lower-risk situations, insurers may be permitted to use a less rigorous analysis provided it is sufficient to demonstrate adequacy.

AG 55 will be effective for reserves reported in 2025 annual statements and for asset adequacy analysis of the reserves reported in all subsequent annual statements, with reports to be due on April 1 of each year (beginning April 1, 2026). For at least the first year of implementation, AG 55 will require disclosure only of the asset adequacy testing results and does not include prescriptive guidance as to whether additional reserves should be held. The determination of whether additional reserves should be held is up to the domestic regulator, which will continue to have the authority to require additional reserves as deemed necessary and as may be determined by the ceding company’s appointed actuary in its actuarial opinion.

The Reinsurance Task Force received an update on an initiative regarding offshore life reinsurance, recognizing that it has become a topic of increased focus by the NAIC. NAIC staff, with the help of several key regulators, held two regulator-only education sessions that were intended to brief regulators on the issues related to offshore reinsurance and that also led to discussions on specific state experiences and potential next steps. The NAIC plans to hold another roundtable session to complete these discussions and consider developing training, analytic tools, and modeling capabilities for regulators to use in evaluating reinsurance risks.

While the Reinsurance Task Force spent time during its meeting to discuss the recent adoption of AG 55, NAIC staff also reminded regulators of the adoption in June 2023 by the Macroprudential (E) Working Group (MWG) of the reinsurance worksheet. The reinsurance worksheet was the product of the MWG’s ongoing work related to the 13 Regulatory Considerations for Private Equity Owned Insurers (List of PE Considerations), which includes as one such consideration insurers’ use of offshore reinsurers and complex affiliated sidecar vehicles. The MWG is continuing its work on the List of PE Considerations and intends to focus on the area of cross-border reinsurance in the near future.

The Reinsurance Task Force also heard an update on the property and casualty reinsurance roundtable hosted by the California Department of Insurance, which included a site visit to wildfire-damaged areas in California, to facilitate dialogue among regulators and industry participants on the implications of offshore reinsurance capacity and on potential regulatory tools to assess the strength of property and casualty reinsurance programs.

The presentation from NAIC staff identified potential risks of such programs, including reporting/transparency risk, liquidity risk, asset and liability management risk, and credit risk. The presentation from NAIC staff also included questions for industry related to such programs, such as how potential risks are managed, whether FABN/FABS program (and also Federal Home Loan Bank) advances are treated as debt, whether debt-to-equity ratios should include debtlike insurance liabilities (such as funding agreements), how it is determined which entity issues a funding agreement, and how they are booked. While no next steps by the NAIC have been specifically identified, the questions also included a request for feedback from the industry on various options for potential disclosure, including annual statement interrogatories or notes, asset adequacy testing, cash-flow testing, liquidity stress testing, and Own Risk and Solvency Assessment and/or Enterprise Risk Report (Form F).

The revisions to AG 49-A are intended to address concerns identified by regulators related to companies including multiple historical averages (e.g., 10-year, 15-year, 20-year), sometimes based on back casting and often showing the historical averages side-by-side with the maximum illustrated rate (even where the historical averages were two to four times the maximum illustrated rate). The revisions seek to increase uniformity in disclosure practices by

• prohibiting the inclusion of a table showing actual historical index changes and corresponding hypothetical annual rates of indexed credits for indices in existence for less than a specified number of years (with five and 10 years under consideration in the current version of the revisions)
• eliminating the perceived optionality in the number of historical years shown by increasing the standard table to require the information for only the most recent 25-year period (or, for indices in existence more than five or 10 years, as applicable, but less than 25 years, the number of years the index has been in existence)
• prohibiting tables or disclosures that explicitly or implicitly compare historical returns and maximum illustrated rates, such as a side-by-side presentation
• adding to Section 3 new defined terms for “historical period,” “inception date,” and “index,” which terms are used in revised Section 7

As currently proposed, the revisions to AG 49-A would apply only prospectively to policies sold on or after April 1, 2026.

The key revisions include (a) limiting the MSA Framework to a single rate review methodology (based on the Minnesota approach and removing references to the Texas approach), (b) updating the cost-sharing factors to reduce rate increases for policyholders who have faced past high cumulative rate increases (typically older policyholders with older policies), and (c) moving the governance of the LTCI MSA Framework and related processes to the Health Actuarial (B) Task Force, and other related work such as reduced benefit options, to the Senior Issues (B) Task Force.

Additional background on the LTCI MSA Framework and the proposed revisions thereto can be found in our prior reporting from the NAIC Spring 2025 National Meeting available here.

The working group was formed following discussions at the Chief Financial Regulator Forum and the Risk-Focused Surveillance (E) Working Group in late 2024 and early 2025 regarding the recent increase in the formation of reciprocal exchanges, and regulators’ challenges in assessing the fairness and reasonableness of attorney-in-fact fees charged to newly formed reciprocal exchanges. Twenty-one new reciprocal exchanges were formed from 2019 to 2024, and direct premiums written by reciprocal exchanges increased by 55.35%. While the attorney-in-fact fee structure is often based on a percentage of gross premiums written, the Risk-Focused Surveillance (E) Working Group suggested that attorney-in-fact fees should be limited to the cost of any management services provided, plus a modest profit.

The new working group’s proposed charges have been included in the proposed 2026 charges of the Financial Condition (E) Committee and are expected to be considered for adoption by the committee in November 2025.

a. VOS Task Force Adopts P&P Manual Updates Regarding Private Letter Rating Rationale Reports

The VOS Task Force adopted amendments to the P&P Manual to require that (i) private rating letter rationale reports be filed within 90 days of a change and (ii) private rating letter rationale reports include analytical substance. Since January 1, 2024, private letter rated (PLR) securities have generally required a corresponding private rating letter rationale report to be eligible for an NAIC Designation to be assigned through the filing exemption (FE) process. The amendments had been exposed for a 14-day public comment period ending June 18, 2025.

The first of the amendments is intended to clarify when a private rating letter rationale report needs to be filed with the NAIC Securities Valuation Office (SVO) to prevent a security from becoming ineligible for the FE process and the related FE-derived NAIC Designation from being deactivated. The amendment would allow a grace period of 90 days from the date of a rating change for a new or updated private rating letter rationale report to be filed with the SVO. If the private rating letter rationale report is not filed during that time, the PLR security would become ineligible for the FE process until such time as the SVO receives the private rating letter rationale report related to such rating change. The adopted amendment reflects industry comments limiting the requirement to rating changes (rather than confirmations or affirmations).

The second of the amendments is intended to clarify what a private rating letter rationale report filed with the SVO is expected to include. The SVO has received private rating letter rationale reports that do not appropriately explain the “analysis of the credit, legal and operational risks and mitigants supporting the assigned” rating, as required by the P&P Manual. As a result, the amendment requires insurers to file a full private rating letter rationale report that contains sufficient analytical substance to enable an independent party to form an opinion as to the investment risk for any rating action, even if the policies of the credit rating provider (CRP) do not require a full analysis. As requested by industry, the amendment, as adopted, specifies that the SVO may reject a filing only if a filer fails to adequately respond to the SVO’s request for additional information regarding the lack of analytical substance.

At the Summer Meeting, the VOS Task Force also exposed for a 30-day public comment period ending September 12, 2025, a proposed amendment to the P&P Manual to permit a 30-day filing grace period to provide the private rating letter annual update. 

b. VOS Task Force Proposes Amendment to Further Postpone Implementation of CLO Modeling Project

At the Summer Meeting, the VOS Task Force exposed an amendment to the P&P Manual that would delay the implementation of its CLO modeling process until December 31, 2026. The delay is intended to allow for a coordinated approach with a parallel project led by the American Academy of Actuaries (AAA), which is developing a broader risk-based capital (RBC) framework for structured securities.

The VOS Task Force previously adopted an amendment to the P&P Manual, which became effective January 1, 2025, to add reporting instructions for the financial modeling of CLOs. Specifically, the P&P Manual amendment makes CLOs ineligible to use CRP ratings to determine an NAIC Designation if the NAIC Structured Securities Group (SSG) can model the security. The P&P Manual amendment was introduced after the NAIC Investment Analysis Office identified that NAIC Designations assigned to CLOs were inconsistent when relying on CRP ratings and recommended this change to ensure reporting equivalency for NAIC regulatory purposes.

The CLO modeling project has been led by an ad hoc group, and while the modeling methodology is operationally and technically ready to produce results for year-end 2025, the VOS Task Force determined to delay the effective date for implementation to ensure a clear timeline to align with ongoing work by the Risk-Based Capital Investment Risk and Evaluation (E) Working Group (RBC IRE Working Group) and the AAA related to asset-backed securities, like CLOs, as well as the holistic review of the overall RBC framework by the Risk-Based Capital Model Governance (EX) Task Force.

Given all these concurrent workstreams and the anticipated updates expected in September from the RBC IRE Working Group on CLOs, the VOS Task Force determined to defer implementation of the CLO modeling process for one year to give these other efforts additional time. The amendment is exposed until September 12, 2025.

c. NAIC Announces Restructuring of Investment Monitoring Activities

In June 2025, the Financial Condition (E) Committee adopted a recommendation to rename the VOS Task Force to the Invested Assets (E) Task Force and appoint the following new working groups under the task force: Investment Analysis (E) Working Group (Investment Analysis Working Group), Securities Valuation Office and Structured Securities (E) Working Group (Structured Securities Working Group), and the Credit Rating Provider (E) Working Group (CRP Working Group). These changes will take effect on January 1, 2026.

Under the new structure, the task force would become a commissioner-level group, chaired and vice chaired by two commissioners. In addition to overseeing the three new working groups, the task force would (i) provide a forum for regulator education on investment products, their performance, and their financial risks as well as methods for regulators to address such risks and (ii) analyze new or evolving investment products that may possess characteristics that pose unique risks to insurers and the industry and coordinate with different NAIC groups to develop, implement, or advise on investment-related solvency policy changes or procedures.

The new Investment Analysis Working Group is intended to be the primary group analyzing new or evolving investment products that may possess characteristics that pose unique risks to insurers. The working group is expected to be limited in size and hold most of its meetings in a regulator-only setting.

The VOS Task Force’s current charges will be divided between the Structured Securities Working Group and the CRP Working Group. The Structured Securities Working Group will focus on monitoring the operations of the SVO and the SSG to ensure they continue to reflect regulatory objectives and maintaining and revising the P&P Manual to provide solutions for investment-related regulatory issues for existing or anticipated investments. The CRP Working Group will focus on implementing the CRP due diligence framework, including proposing further refinements to the FE process.

CATF initially released a draft proposal in April 2024 to revise the RBC Preamble, a document that sets forth principles and guidance developed by the NAIC on the purpose, methodology, and limitations of the RBC framework for insurers. While the RBC Preamble currently describes limits on the public use of RBC, the proposed revisions would, among other things, delineate additional examples of prohibited public disclosure of RBC levels, including in “press releases, earnings releases, webcast materials, or any other earnings presentations or webcasts.”

The proposed revisions would conflict with historical disclosure practices, as many insurers reference RBC levels in earnings materials or other public documents. The availability of RBC data in publicly available statutory filings led to broader reliance by external stakeholders. However, supporters of the revisions argued that these revisions are needed to reinforce that RBC was designed as a regulatory solvency tool rather than a measure for use by rating agencies, investors, or consumers. CATF received approximately 150 comment letters on the proposed revisions.

CATF postponed exposure of the RBC Preamble revisions in June 2024 but reexposed them at its March 25, 2025, meeting, with modifications based on comments received from the prior exposure.

At the Summer Meeting, CATF discussed the comments received from regulators and interested parties to the RBC Preamble revisions during the March 25, 2025, exposure period, emphasizing that despite various concerns raised regarding removal of “total adjusted capital” and “authorized control level” in the Annual Statement Five-Year Historical page, such a proposal is not currently on the CATF agenda.

While CATF did not formally reexpose the RBC Preamble revisions for comment, CATF does intend to defer further discussion on the comments until October 15, 2025, and interested parties may submit additional comments for consideration until October 1, 2025. CATF has requested that any additional comments include a redline with suggested revised language so that the October meeting can be focused on developing an updated draft for exposure.

a. SAP Working Group Adopts Clarifications to Guidance on the Risk Transfer Analysis of Combination Reinsurance Contracts

The SAP Working Group adopted previously exposed revisions to SSAP No. 61, Life, Deposit-Type, and Accident and Health Reinsurance (SSAP No. 61), and Appendix A-791, Life and Health Reinsurance Agreements (A-791), to incorporate guidance noting that interdependent contract features such as a shared experience refund must be analyzed in the aggregate when determining risk transfer. The revisions would be immediately effective for new and newly amended contracts, with provisions to allow a December 31, 2026, effective date for existing contracts to allow time for industry and regulator assessment. The revisions remain subject to approval by the Financial Condition (E) Committee, which deferred action on this item until a subsequent meeting.

While industry comments requested grandfathering all contracts in effect prior to January 1, 2024, the SAP Working Group ultimately did not support grandfathering of existing contracts due to concerns of market inconsistency and creating conflicts with current guidance or recent state actions. The SAP Working Group noted that with a year-end 2026 effective date, companies should have time to approach states on different methods of handling problematic contracts such as amending, recapturing, establishing liabilities, or seeking a permitted accounting practice.

The revisions to SSAP No. 61 were initially exposed at the NAIC Spring 2024 National Meeting in response to a referral from the Valuation Analysis (E) Working Group (VAWG) and were re-exposed at the NAIC Summer 2024 National Meeting and again in June 2025 to allow for further discussion. VAWG had identified issues were arising in connection with evaluating reinsurance for risk transfer in accordance with SSAP No. 61 when treaties involve more than one type of reinsurance and where there is interdependence of the types of reinsurance, including a refund based on aggregate experience. VAWG regulators observed that some insurers are reporting an overstated reserve credit due to a bifurcated risk transfer analysis where the insurers reported a proportional reserve credit for a coinsurance component, despite in aggregate the reinsurer’s being exposed to loss only in tail scenarios. Thus, the ceding company would take a proportional reserve credit that reflects the transfer of all actuarial risks when not all actuarial risks were transferred. To address these concerns, VAWG made a recommendation to the SAP Working Group to consider clarifications to risk transfer requirements.

The proposed revisions to SSAP No. 61 clarify that for purposes of evaluating whether a contract with a reinsurer transfers risk, what constitutes a contract is essentially a question of substance. For instance, the profit-sharing provisions of one contract may refer to experience on other contracts and therefore raise the question of whether, in substance, one contract rather than several contracts exists. Therefore, if agreements with a reinsurer do not, in the aggregate, transfer risk, the individual component contracts that make up those agreements also would not be considered to transfer risk, regardless of how they are structured.

The revisions to A-791 were first exposed in June 2025 and are intended to clarify that risk transfer can occur only if there is no potential for payments out of surplus at the reinsurer’s option or automatically upon the occurrence of some event, meaning that in all cases there would be an established liability to absorb any possible payments.

b. NAIC Extends Interim Guidance to Permit the Admittance of Negative Interest Maintenance Reserve

The SAP Working Group adopted revisions to INT 23-01T, Net Negative (Disallowed) Interest Maintenance Reserve (INT 23-01T), extending its effectiveness until December 31, 2026. INT 23-01T, which was initially adopted at the NAIC Summer 2023 National Meeting, is an interpretation of statutory accounting principles that provides optional, limited-term guidance for the admittance of net negative (disallowed) IMR under SSAP No. 7, Asset Valuation Reserve and Interest Maintenance Reserve (SSAP No. 7), for up to 10% of adjusted general account capital and surplus.

The revisions also clarify the guidance and incorporate additional requirements to admit net negative IMR, as follows: (i) clarification on the adjusted capital and surplus calculation (from prior filed financials), with an additional cap to limit admittance to 10% of current unadjusted capital and surplus; (ii) new requirement to complete the data-captured template disclosures to admit net negative IMR; (iii) new requirement that net negative IMR be captured in the principle-based reserves calculation or asset adequacy testing/cash flow testing pursuant to VM-20, Requirements for Principle-Based Reserves for Life Products, with a requirement to prepare a reconciliation to ensure that reserves are not overstated; and (iv) clarification on the derivative disclosure roll-forward to ensure that the amount disclosed for “net negative disallowed IMR” reflects the total.

The SAP Working Group continues its work to establish specific accounting guidance on net negative (disallowed) IMR to serve as a long-term solution. At the Summer Meeting, the SAP Working Group directed NAIC staff to proceed with using a previously exposed IMR definition in a forthcoming issue paper, and subsequent revisions to SSAP No. 7, as part of the long-term project to capture the accounting guidance for IMR in SSAP No. 7. The proposed definition recognizes that IMR itself is not an asset or liability but rather a valuation adjustment needed to maintain consistency between insurance liabilities and the assets needed to support them. The SAP Working Group acknowledged that subsequent exposures of the issuer paper and proposed SSAP revisions may result in additional revisions.

The IMR Ad Hoc Subgroup charged with developing long-term IMR guidance also provided an update to the SAP Working Group on its activities, noting that its discussions since the NAIC 2025 Spring National Meeting have focused on IMR from reinsurance transactions and proof of reinvestment.

c. SAP Working Group Considers Elimination of Investment Subsidiary Classification

The SAP Working Group exposed revisions to Schedule D-6-1, Valuation of Shares of Subsidiary, Controlled, or Affiliated Companies (Schedule D-6-1), to eliminate the “investment subsidiary” concept from the annual statement instructions, effective December 31, 2026. This issue was initially raised at the NAIC Fall 2024 National Meeting in response to concerns with the reporting of “investment subsidiaries,” particularly with regard to the potential RBC benefit that can occur without transparency to regulators on the assets within an “investment subsidiary.” 

Following the NAIC Fall 2024 National Meeting, interested parties indicated that the key industry focus is on developing accounting and reporting guidance for Delaware statutory trust (DST) structures holding residential mortgage loans. As a result, at the NAIC Spring 2025 National Meeting, the SAP Working Group deferred further action on the accounting and reporting of investment subsidiaries to allow for further consideration of DSTs holding residential mortgage loans. In May 2025, the SAP Working Group exposed revisions to SSAP No. 37, Mortgage Loans, which provide accounting guidance for qualifying trust structures, regardless of the state of domicile, that hold residential mortgage loans with reporting of these items on Schedule B – Mortgage Loans. In response to comments from interested parties, the SAP Working Group exposed an updated draft of the revisions, expanding the scope of statutory trusts that would qualify for look-through accounting treatment.

The proposed elimination of the generic “investment subsidiary” had been previewed at the NAIC Spring 2025 National Meeting as likely to occur once the SAP Working Group reached a decision for residential mortgage loans held in DSTs. The SAP Working Group has also invited interested parties to alert NAIC staff to any other specific structures captured as “investment subsidiaries” on Schedule D-6-1 that warrant separate review.

d. SAP Working Group Updates on Asset-Liability Matching Derivatives

The SAP Working Group received an update from NAIC staff relating to consideration of new statutory accounting guidance for derivatives that are “highly effective” in asset-liability matching (ALM) derivative programs. The guidance is intended to address the potential deferral of gains and losses from these derivative transactions, which some companies had been captured in IMR.

NAIC staff has been working with key industry representatives on draft SSAPs for potential consideration. Due to the technical nature of the topic, a separate meeting of the SAP Working Group has been scheduled for September 10, 2025, to discuss key concepts and options. 
It is anticipated that the SAP Working Group will consider exposure of the proposed SSAP guidance at a subsequent interim meeting or at the NAIC Fall 2025 National Meeting.

a. Request for Information Regarding an NAIC Model Law on the Use of AI in the Insurance Industry

 In May 2025, the Big Data and Artificial Intelligence (A) Working Group exposed for comment a request for information regarding proposing an NAIC model law on the use of AI in the insurance industry. The working group received 33 comment letters from regulators, consumer representatives, health provider groups, trade organizations, and insurtechs. Interested parties from industry generally agreed that discussion of a model law was premature because regulators can use existing tools to regulate industry’s use of AI. Industry was generally supportive of continued focus on adoption of the NAIC Model Bulletin on the Use of Artificial Intelligence Systems by Insurers (Model Bulletin). As of July 2025, approximately half of the states have adopted the Model Bulletin. 

b. Exposure of Draft AI Systems Evaluation Tool 

In July 2025, the Big Data and Artificial Intelligence (H) Working Group exposed for comment an AI Systems Evaluation Tool (Evaluation Tool) to enable regulators to identify and assess both financial and consumer risks arising from insurers’ use of AI systems (AIS). The comment period for this exposure was extended to September 5, 2025, and the Evaluation Tool was not discussed in detail during the Summer Meeting.

In contrast to the Model Bulletin, which is focused on impact to consumers, the Evaluation Tool recognizes that the use of AIS could also present risks to insurers’ financial condition, marking an expansion of regulatory concerns around AI to include aspects of prudential regulation. The tool includes the following four exhibits that are proposed as a standardized method of data collection for regulators to request and review quantitative and qualitative information about an insurer’s use of AIS.

• Exhibit A: Quantify Regulated Entity’s Use of AI Systems: quantifies the insurer’s existing and planned use of AIS across operational areas, including data on models with consumer impact, material financial impact, and consumer complaints resulting from AIS
• Exhibit B: AI Systems Governance Risk Assessment Framework: seeks detailed information regarding the insurer’s AI governance and risk management program, processes, and procedures and serves as a potential guide for what regulators will be looking for in an insurer’s AIS program
• Exhibit C: AI Systems High-Risk Model Details: seeks information on insurers’ use of “high-risk AI system models,” which are defined as those that engage in automated decisioning and that could cause adverse consumer, financial, or financial reporting impact 
• Exhibit D: AI Systems Model Data Details: seeks detailed information on the source(s) and type(s) of data used in AIS models, including whether the data is sourced internally or from third parties

The working group’s efforts to develop the Evaluation Tool are expected to continue into next year, and a regulator self-audit pilot is expected in 2026, with the Evaluation Tool being finalized following that pilot.

c. Definitions of Third-Party Data Vendor and Third-Party Model Vendor

The Third-Party Data and Models (H) Working Group is charged with developing and proposing a framework for the regulatory oversight of third-party data and predictive models. The working group’s current efforts are focused on building consensus around the definitions of “third-party data vendor” and “third-party model vendor.” During the Summer Meeting, the working group, interested regulators, and interested parties discussed these definitions. Among questions under discussion:

• What types of organizations should be considered third parties?
• What does a data vendor do?
• What is third-party data, and what data should be excluded?
• What does a model vendor do, and should any models be excluded?
• Should third-party work focus on specific insurer operations or all insurer operations?
• Should any operations be excluded?

As a next step, the working group expects to draft definitions informed by the Summer Meeting discussion and expose them for comments from the working group and interested parties.