Bridgeway Analytics

Our latest report explores efforts to revise the NAIC investment risk oversight framework, which is moving forward on several fronts. The Financial Condition (E) Committee (E-Committee) formed a Drafting Group of regulators that mapped out a Workplan. The Workplan includes an assessment of a significant expansion of the NAIC’s analytical capabilities through centralized investment expertise (CIE). The effort acknowledges that the SVO currently limits its focus on credit risk, highlights regulators’ needed understanding of macroprudential and emerging risks, as well as needed guidance on policy design. In addition, the E-Committee is petitioning for the development of a request for proposal to engage a consultant who would help the NAIC develop a due diligence program over the ongoing use of agency ratings. 

Welcome back to another Bridgeway Analytics Evolving Landscape. National Association of Insurance Commissioners (NAIC) staff have been busy, posting 100s pages of material in preparation for the upcoming Spring National Meeting. Fortunately for you, we've distilled the vast flow of information, letting you stay on top of what matters most! - Moving efforts forward to develop a due diligence program over the use of agency ratings. The Financial Condition (E) Committee posted a petition for the development of a request for proposal (RFP) to engage a consultant who would help the NAIC develop a due diligence program over the ongoing use of agency ratings. - Definition and discretion over rating agency-based Designations. The Valuation of Securities (E) Task Force updated its Spring National Meeting materials, clarifying the proposed definition of NAIC Designations, and the proposal that extends NAIC staff discretion over agency rating-based Designations will receive comments for discussion rather than be considered for adoption in their current form. - The Statutory Accounting Principles (E) Working Group posted materials for its meeting, which include an update on key topics:   -- The bond definition and the treatment of investment vehicles, including feeder funds, are being revised. There are potentially significant implications for capital treatment of feeder funds. NAIC staff is requesting guidance on the types of debt securities issued by funds that should be considered those of operating entities rather than asset-backed securities and language to define better the extent of debt that may be issued to fund operations.  -- Conforming repurchase agreements. Efforts to modify the treatment of repurchase agreements (repos) in the life RBC formula would have them mirror the treatment of certain security lending arrangements. -- New Market Tax Credits. The refinement of guidelines for overseeing tax credits is moving forward.  -- Valuation of separate accounts. NAIC staff is reviewing the increased assets reported at “book value” within the separate account. It is considering recommended changes that are possibly relevant to pension risk transfer and registered indexed-linked annuities.  -- IMR / AVR preferred stock. Refinements to the reporting of preferred stock are being considered, which would have them reported as equities through AVR. - The Life Actuarial (A) Task Force posted their agenda, which includes several items that can have downstream implications for strategic asset allocation: -- A discussion on the Proposal to Require Asset Adequacy Analysis for Certain Reinsurance. -- A presentation on Asset-Intensive Reinsurance Ceded Offshore from the --- American Academy of Actuaries. https://lnkd.in/gwsRJWPa

Welcome to this week's Bridgeway Analytics Evolving Landscape, that distills the vast flow of information related to the changing landscape governing insurance investments, packaging, and delivering what matters most to the community! The NAIC's Valuation of Securities (E) Task Force is looking to updated definition of a bond Designation that determines the degree to which its capital charge is favorable. An additional proposal lays out the process by which NAIC staff would be extended discretion over agency rating-based Designations. The materials were posted in preparation for the March Spring National Meeting in Phoenix. The implications can be significant. In other news at the National Association of Insurance Commissioners (NAIC) - The VOSTF agenda and material also includes  -- The Annual Report from the SVO on filings highlighting the growth in the likes of private letter ratings.   -- Updates from the Proposed CLO Modeling Methodology and Ad-hoc Working Group. - The treatment of reinsurance in reserving. The Reinsurance (E) Task Force met and discussed the proposed revisions to the treatment of reinsurance in asset adequacy analysis. - Updated 2023 scalars adopted for group capital calculations.  - Equity volatility in asset adequacy analysis. The Life Actuarial (A) Task Force adopted changes to the classification of 'equity-like instruments' and guidance on how the volatility of 'equity-like instruments' should be treated in asset adequacy analysis. On the international front, the Bank of England's Prudential Regulation Authority (PRA) published two policy statements as it works toward full implementation of U.K. Solvency II by year-end 2024. (jump to story) #insurance #investments #insuranceindustry #capitalmarkets #insurtech #riskmanagement #creditrisk

Welcome to this week's Bridgeway Analytics Evolving Landscape, that distills the vast flow of information related to the changing landscape governing insurance investments, packaging, and delivering what matters most to the community! At the National Association of Insurance Commissioners (NAIC) Classification of debt and valuation of residual interests. The Statutory Accounting Principles (E) Working Group met on February 20, with several updates on:  -- Proposed accounting guidance for residual interests. Proposed changes to the treatment of life company's repurchase agreements. -- Proposed changes to reporting that may impact non-SEC registered funds and collateral loans. The RBC framework. The Risk-Based Capital Risk & Evaluation Ad Hoc Group met to receive an update from its subgroups that were formed to review and possibly recommend revisions to the RBC framework. The RBC Purposes and Guidelines Subgroup update was lively, to say the least, with regulators and interested parties continuing deliberations over the purpose and use of RBC and current guidelines, whereby RBC is confidential. Statutory filings and instructions. The Blanks (E) Working Group met on February 21 and exposed for public comment proposed changes to: The categorization of debt securities on Schedule BA that do not qualify as bonds.  - Changes to Investment Schedules General Instructions to identify that common and preferred stock residual interests should be reported on Schedule BA.  - Clarifying instructions on what should be included in Other Short‐Term and Other Cash Equivalent categories. A couple of updates for your calendar. If you prefer, sign up for the Outlook ART Calendar, which will keep you current! - Group Capital Calculations. The Group Capital Calculation (E) Working Group will meet on February 27. - The treatment of reinsurance in reserving. The Reinsurance (E) Task Force will meet on February 26. On the ESG front, the NAIC Statement on Environmental, Social, and Governance Policies for the insurance sector was unanimously adopted. On the international front, the U.S.- U.K. Joint Committee that oversees the bilateral covered agreement governing reinsurance met and reaffirmed the functioning and importance of the bilateral covered agreement that governs reinsurance (including collateral and local presence), group supervision, and exchange of information. #insurance #investments #insuranceindustry #capitalmarkets #insurtech #riskmanagement #creditrisk

Welcome to this week's Bridgeway Analytics Evolving Landscape, that distills the vast flow of information related to the changing landscape governing insurance investments, packaging, and delivering what matters most to the community! In a significant move, the National Association of Insurance Commissioners (NAIC) Financial Condition (E) Committee has formed a Drafting Group and posted a Workplan for its proposed framework for investment risk oversight. The content is deep and implications are far-reaching for investment guidelines and capital markets more broadly. At the NAIC - The NAIC announced its 2024 Strategic Priorities which include Insurer Financial Oversight and Transparency.  - The Life Actuarial (A) Task Force met today to discuss the February 8 proposal to require Asset Adequacy Analysis to be performed for life and annuity reinsurance transactions. With the debate becoming increasingly lively, regulators held off on posting the proposal for public comment, for now. - The Risk-Based Capital & Evaluation Ad Hoc Asset Concentration Subgroup met today, February 15, to continue discussions on building an inventory asset concentration risks of material concern and a framework for assessing their materiality and assess where in the investment risk oversight framework the risks should be managed.  - The Blanks (E) Working Group, which oversees reporting and instructions related to statutory accounting, will meet on February 21, 2024, at noon ET with an agenda that includes: -- Categorize debt securities on Schedule BA that do not qualify as bonds.  -- Update the Investment Schedules General Instructions to identify that common and preferred stock residual interests should be reported on Schedule BA. -- Clarifying instructions on what should be included in Other Short‐Term and Other Cash Equivalent categories. The International Insurance Relations (G) Committee met today. It approved the submission of NAIC comments on the IAIS - International Association of Insurance Supervisors public consultations on climate risk supervisory guidance - market conduct and scenario analysis. On the state front, New Jersey adopted refinements to its Investments of Insurers Model Act to provide property and casualty insurers latitude with foreign investments. #insurance #investments #insuranceindustry #capitalmarkets #insurtech #riskmanagement #creditrisk

Welcome to this week's Bridgeway Analytics Evolving Landscape, that distills the vast flow of information related to the changing landscape governing insurance investments, packaging, and delivering what matters most to the community! At the National Association of Insurance Commissioners (NAIC): - The treatment of reinsurance in reserving. The Life Actuarial (A) Task Force met today to discuss a proposal from Iowa and New Jersey insurance regulators that would require Asset Adequacy Analysis to be performed for life and annuity reinsurance transactions. In response to significant growth in reinsurance transactions, rulemaking bodies globally have increased scrutiny over the practice. The proposal intends to ensure that the asset adequacy analysis safeguard continues to apply within the domestic cedent for all businesses for which it remains directly liable to pay policyholder claims, including but not limited to long-duration business.  - The NAIC Capital Markets Bureau has released its latest report, Growth in U.S. Insurers’ Schedule BA Assets Slows at Year-End 2022. Growth in 'other long-term invested assets' held on Schedule BA assets decelerated to 2.3%, reaching $534 billion, in 2022 following several years of strong double-digit year-over-year growth. On the state front, Iowa's efforts to further refine the investment statutes for life and health insurers are moving forward and through the legislative process, with the Senate and House Subcommittee recommending passage of SSB 3108 and HSB 606. On the international front - The Institutions for Occupational Retirement Provision (IORP), which sets standards for pensions under the European Insurance and European Insurance and Occupational Pensions Authority (EIOPA), published its first Risk Dashboard on IORPs. The first edition shows that the IORPs’ exposure to market & asset return risks is currently high, making this the most relevant risk category for the sector given the still high volatility in bond markets. - EIOPA published its own February 2024 Insurance Risk Dashboard, which shows that insurers’ exposure to market risk is currently at a high level and the main concern for the sector. #insurance #investments #insuranceindustry #capitalmarkets #insurtech #riskmanagement #creditrisk

Welcome to another edition of Bridgeway Analytics Evolving Landscape that distills the vast flow of information related to the changing landscape governing insurance investments, packaging, and delivering what matters most to the community! At the National Association of Insurance Commissioners (NAIC): Residual interests are back in the news, this time those held by health, property & casualty, and ModCo insurers. Repurchase agreements and securities lending  - The Capital Adequacy (E) Task Force (CATF) exposed a proposal for repurchase agreements of property & casualty and health insurers to mirror the Life proposal. - Securities lending practices were reviewed by the NAIC Capital Markets Bureau in its latest report. The Statutory Accounting Principles (E) Working Group (SAPWG) exposed revisions to the New Market Tax Credit proposal. Proposed refinements to the treatment of equity as it relates to Valuation Manual (VM-30) were exposed for public comment. Did you know RBC instructions are confidential and communicating insurers' RBC level is prohibited? Don't miss this week's In the Weeds with Brett and Doug. https://lnkd.in/exX6p8ND #insurance #investments #insuranceindustry #capitalmarkets #insurtech #riskmanagement #creditrisk

Welcome to another edition of Bridgeway Analytics Evolving Landscape that distills the vast flow of information related to the changing landscape governing insurance investments, packaging, and delivering what matters most to the community! This week, we saw several developments at the National Association of Insurance Commissioners (NAIC) as well as the international and state fronts, so let's dive in. At the NAIC: - The Life Actuarial (A) Task Force (LATF) met, with discussions that included: (1) Permitted and prescribed practices whereby insurers and states follow practices that deviate from the NAIC Accounting Practices and Procedures Manual (AP&P Manual), and (2) Remove references to RBC that are inconsistent with the purpose, scope, and intended use of RBC, an issue that is receiving increasing attention. - The Life Risk-Based Capital (E) Working Group (LRBCWG) met, with discussions that included the American Council of Life Insurers (ACLI) Repurchase Agreement Proposal, which was posted for public comment. - The Group Capital Calculation (E) Working Group (GCCWG) exposed the ACLI GCC Scalars Calibration Reports as a follow-up to the ACLI Excess Relative Ratio (ERR) scalars that were adopted in July. On the state front, Iowa is looking to refine the rules governing investments for life and health insurers further. If you recall, Iowa had significantly modernized statutes that govern life and health investments in 2023. On the international front:  - The Bermuda Monetary Authority (BMA) published its first Bermuda Long-term Insurance Market Analysis and Stress Testing Report, partly motivated by the sector's material growth relevance to the overall Bermuda insurance market. - The European Insurance and Occupational Pensions Authority (EIOPA) published its Study on Diversification Modeling in the internal models used by insurers. The study is part of EIOPA’s wider bid to efficiently compare outputs from the range of internal models. #insurance #investments #insuranceindustry #capitalmarkets #insurtech #riskmanagement #creditrisk https://lnkd.in/gq_rkD_K

Welcome to another edition of Bridgeway Analytics Evolving Landscape that distills the vast flow of information related to the changing landscape governing insurance investments, packaging, and delivering what matters most to the community! It was a light week, with the new year having National Association of Insurance Commissioners (NAIC) groups being reconstituted, and newly placed regulators are getting up to speed on the issues. That said, we are excited to share some interesting analyses: - Brett Manning and Doug Dwyer go deep In the Weeds and explore Broadly Syndicated Loans: Interpreting Trends and Risks. The landscape has evolved considerably. The significant growth in the corporate loan market has come with changes to the composition of investors, borrowers, and the terms of transacting. Trending changes to loan terms, often having bespoke characteristics that align borrower business needs with investor-risk profiles, can be difficult to interpret and assess their materiality. This week, we explore some headline observations, provide perspectives for their possible drivers, and relate them to how some rating agencies account for the dynamics. The $2.5 trillion U.S. broadly syndicated loan (BSL) market has grown tremendously over the last fifteen years. The growth is evident in the leveraged loan (i.e., high-yield/below investment grade) market, as well as in the investment grade space. Beyond its growth, the market has changed over time, as highlighted by S&P Global Leveraged Finance: U.S. Leveraged Loan Q3 Update and Credit Trends: A Rise In Selective Defaults Presents A Slippery Slope, which point to the shifting trend toward loans being covenant-lite and selective defaults (the majority of these distressed exchanges), potentially impacting recovery. Want to learn more? https://lnkd.in/gAvB3ZvZ - The NAIC’s Journal of Insurance Regulation published its report, Climate Risks in the Commercial Mortgage Portfolios of Life Insurers: A Focus on Sea Level Rise and Flood Risks. The paper's release comes at an interesting time, as the NAIC has been increasingly focused on asset and geographic concentration risks. #insurance #investments #insuranceindustry #capitalmarkets #insurtech #riskmanagement #creditrisk

Hello, and Happy New Year! Welcome to another edition of Bridgeway Analytics Evolving Landscape that distills the vast flow of information related to the changing landscape governing insurance investments, packaging, and delivering what matters most to the community! We have a lot to catch up on, so buckle up. There were several noteworthy developments at the National Association of Insurance Commissioners (NAIC): - Proposed revisions to the principles-based bond definition to clarify the treatment of debt issued by non-SEC registered funds and to better align with the recently adopted definition of residual interests are being considered by the Statutory Accounting Principles (E) Working Group (SAPWG). Under the proposed revisions, the bond of non-SEC registered funds will not, de facto, be classified as that of an asset-backed security, which is significant. - SAPWG has also adopted a rejection of the current expected credit losses methodology (CECL) and treatment of Credit Losses on Financial Instruments under GAAP, maintaining pre-CECL impairment guidance. - The Updated Generator of Economic Scenarios (GOES) Targeting Criteria and Evaluation Statistics was posted with a request for comment. It will likely have broad downstream implications for reserving, liability hedging, and strategic asset allocation. A couple of calendar items for you to update:  - Registration is now open for the NAIC 2024 Spring National Meeting, March 15 - 18 in Phoenix, AZ (register here). - The RBC Risk & Evaluation Ad Hoc - Asset Concentration Subgroup will meet on January 31. On the International Front - The International Monetary Fund released its report, Private Equity and Life Insurers, which studies the growing trend of private equity (PE) investments in the life insurance industry, a topic that was also discussed at a high level in the IMF's Annual Financial Stability Report. - The European Insurance and Occupational Pensions Authority published its Supervisory Convergence Plan for 2024, which included a new project on a supervisory convergence tool to identify best practices with the supervision of PE-owned insurance companies. #insurance #investments #insuranceindustry #capitalmarkets #insurtech #riskmanagement #creditrisk