The Investment Risk-Based Capital Working Group (IRBCWG) held a conference call on October 23 in lieu of meeting at the Fall 2017 National Meeting to discuss updating the corporate bond factors for life companies and changes to corporate bond factors for P&C and health companies.
The American Academy of Actuaries (AAA) exposed new C-1 factors on October 10 and discussed the reasons for the differences on the call. The new proposed factors are higher than previously proposed.
The AAA also proposed a significant change to portfolio adjustment factors that will resemble what they previously exposed, providing a similar end result to the average life insurer’s portfolio. The table below details the updated C-1 factors and the proposed portfolio adjustment factors.
The AAA exposed a possible starting point for P&C and Health factors. The factors were developed by applying several adjustments to the AAA’s Life model that do not include any adjustment for the shorter duration of an average P&C portfolio, nor for the carrying value difference in NAIC 3-5 bonds. Because of the imprecise nature of these factors, adjustments are expected.
The current health RBC formula does not include a portfolio adjustment factor, and the IRBCWG also discussed whether one should apply. The updated academy report was exposed for a comment period ending January 22, 2018.
The IRBCWG proposed three ideas for how RBC charges on SVO-identified funds should be calculated:
Regulators did not express a strong preference for which method they prefer, but Industry will most likely advocate for the second or third options.
A proposal by the American Council on Life Insurance (ACLI) to modify the factor for real estate assets for life and fraternal companies was also discussed. There are four parts to the ACLI’s proposal:
The AAA has reviewed the ACLI’s proposal and raised some concerns around some of the data and conclusions in the proposal. Regulators also had questions about certain aspects of the proposal but noted they might consider lowering the factor on either schedule and adding additional adjustments. The IRBCWG agreed to have additional calls on this topic so the AAA can have an in-depth discussion on the ACLI’s proposal.