New NAIC group tasked with promoting, enhancing RBC framework

The National Association of Insurance Commissioners formed a new executive-level committee to develop governing principles for making future adjustments to insurers' risk-based capital formulas and to explore other potential changes.

The Risk-Based Capital (RBC) Model Governance Executive Task Force will be led by Wisconsin Insurance Commissioner Nathan Houdek and Ohio Department of Insurance Director Judith French, who will both serve as co-chairs, according to a Feb. 20 press release.

The task force intends to use the guiding principles for the RBC framework to create a "consistent approach to future adjustments" while also building a "strategic foundation" that will enable revisions to the framework to "uphold its integrity, adaptability and global competitiveness," the National Association of Insurance Commissioners (NAIC) wrote in its press release.

In particular, the group aims to design a process to make sure the RBC framework can adapt proactively to emerging risks and market trends. The process will focus on the analysis of both retrospective and future adjustments to RBC and include "regular reviews of RBC outcomes" so that future adjustments are in accordance with the association's guidance, the release said.

The group also plans to conduct a gap analysis and consistency assessment to address inconsistencies and develop an educational public messaging campaign that touts the RBC framework's benefits and strengths as a critical part of the US state-based insurance regulatory structure.

"The newly established task force will also evaluate when to integrate new risks into the RBC formulas, the data needed for setting associated factors, and approaches for addressing emerging risks when a framework did not previously exist," the NAIC said. "Additionally, it will review statistical safety levels and establish guidelines for recalibrating RBC formulas to ensure the formulas remain effective."

Wisconsin's Houdek noted that there has been a "major shift" in the complexity of the industry's investment strategies following the extended period of low interest rates in the wake of the global financial crisis as insurers hunt for yield in their investment portfolios. Houdek said the change has created "more liquidity risk" than what has been seen in the past.

"The new RBC task force will not only serve as an opportunity for state regulators to enhance RBC; it is also an opportunity to reinforce the global competitiveness of the U.S. RBC framework as we educate international stakeholders on these guidance updates," Houdek said in the release.

The formation of the task force advances one of the NAIC's recently released 2025 initiatives to ensure "resilience, relevance, and prosperity for generations to come" by "modernizing" the RBC framework, according to a Feb. 14 press release.