US state insurance regulators are stepping up efforts to get a clearer view of insurers' increasingly complex investment portfolios, overhauling key task forces and advancing new approaches to bonds and structured credit.
“The investment portfolio is a key driver of risk in general and there's been evolution over the past several years in insurer portfolios,” said Stephen Smith, chair of the American Academy of Actuaries C1 Subcommittee, which deals with investment risk. “The NAIC is looking to wrap its arms around modern portfolios.”
According to a report from BestWire, a central part of that push is the National Association of Insurance Commissioners' (NAIC) decision to revamp its long-standing Valuation of Securities (E) Task Force into the Invested Assets (E) Task Force. The commissioner-level body is charged with understanding new and evolving investment structures that may carry unique risks and with coordinating investment-related solvency policy across accounting and risk-based capital.
The change sits within a broader reorganization of the NAIC's investment structure. Under proposals exposed in 2025, the former Valuation of Securities Task Force would be supported by new working groups focused on the Securities Valuation Office (SVO), structured securities and investment analysis, while the Invested Assets Task Force would act as a horizontal forum on emerging products such as private credit and complex securitizations.
According to the NAIC memorandum on its creation, the Invested Assets Task Force will feature working groups on credit rating providers, the SVO and investment analysis, with the last of these expected to be the main engine for "modernization work" on investments, the report said.
Alongside governance changes, the NAIC’s principles‑based bond definition has now gone live, changing how insurers classify, value and report bond and bond‑like investments. The project, first launched as NAIC REF 2019‑21, culminated in a comprehensive rewrite of Statement of Statutory Accounting Principles (SSAP) Nos. 26R and 43R, with an effective date of Jan. 1, 2025.
The definition was adopted in 2023 but went through several revisions and comment periods before implementation, BestWire said. It requires insurers to determine whether a holding is an issuer credit obligation, an asset‑backed security (ABS) or neither when deciding whether it qualifies as a bond for Schedule D reporting.
Barbara Arnold, vice president of institutional investment management at SS&C Technologies Inc., said periods of lower interest rates and the growing use of bespoke and structured instruments had made the old rules increasingly hard to apply. Investment types that might have to be reclassified include debt securities that do not reflect a substantive creditor relationship, instruments lacking meaningful credit enhancement, and securities with insufficient or highly uncertain cash flows.
With the new definition in place, Arnold said it should be easier from a regulatory standpoint to assess what qualifies as a bond and how to classify it appropriately. Market advisers noted that many insurers have already shifted certain holdings out of bond schedules into equity or “other invested asset” categories ahead of the 2025 effective date, often with less favorable capital treatment.
Beyond classification, the NAIC is also reworking how it calculates capital charges for collateralized loan obligations (CLOs), a form of structured debt primarily comprised of broadly syndicated corporate loans. While they share some features with collateralized debt obligations, which were central to the 2008 financial crisis, CLOs are generally viewed as less risky because they reference diversified pools of corporate loans rather than subprime mortgages and have historically exhibited lower default rates.
Regulators previously relied on external credit ratings to determine risk‑based capital (RBC) charges for CLO tranches. As insurers’ allocations have grown and portfolios have become more complex, the NAIC has moved toward a direct modeling approach. The Structured Securities RBC Project now includes a dedicated workstream to develop C‑1 factors for CLOs using an actuarial model, the report said.
“If you hold 20 CLOs versus holding one CLO, there’s a difference in risk there,” said Smith, who is helping lead development of the model.
The factor is intended to reward diversification, with the Academy aiming to present it formally to the NAIC in the coming months. A key practical question for insurers will be how much incremental capital relief a well‑diversified CLO portfolio might receive compared with a concentrated book of similarly rated tranches.
Regulators had originally targeted implementation of the CLO model by the end of 2025, but the Valuation of Securities Task Force has proposed pushing the effective date to year‑end 2026 to give the Academy more time to complete its work and firms more time to adapt.
The CLO project is the first step in a broader effort to update RBC ratios for structured securities. In parallel, the NAIC has already increased life RBC factors for residual tranches of structured securities to 30% for year‑end 2023 and 45% for 2024 as an interim safeguard while longer‑term reforms are developed. Regulators have framed these moves as part of a push toward “equal capital for equal risk,” amid concerns that some complex structures were undercapitalized relative to their economic risk.
Life insurers broadly support the NAIC’s drive to modernize its investment framework but argued that any changes must remain risk‑focused and principles‑based, building on existing capital and reserving architecture rather than adding unnecessary complexity.
“While life insurers support the NAIC’s efforts to modernize its approach, any updates should be risk-focused, principles-based and built on existing capital and reserving frameworks,” said Jillian Froment, executive vice president and general counsel for the American Council of Life Insurers.
“It is important that these efforts are appropriately calibrated to actual risk, avoid unnecessary complexity, recognize insurers’ long-term, liability-driven investment model and provide sufficient time for companies to adjust their portfolios in an orderly manner,” Froment added.
According to the report, the combined impact of the new bond definition and structured‑security capital work will flow directly into asset allocation, product pricing and asset‑liability management over the rest of the decade. Portfolios that lean heavily into complex securitizations, residual tranches or bespoke structures may face higher capital requirements or more volatile statutory results, while well‑diversified bond and CLO books could see relatively more favorable treatment.
Froment said this calibration will be critical to ensuring regulations “continue to protect policyholders while supporting insurers’ ability to deliver long-term financial security.”
