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NAIC eyes changes for life insurers' RBC calculations after tax reform

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NAIC eyes changes for life insurers' RBC calculations after tax reform

The National Association of Insurance Commissioners is looking to make changes to life insurers' risk-based capital calculations for 2018, though the implementation could be delayed to 2019 given a compressed timeframe.

The NAIC developed its RBC formula nearly three decades ago to assist state regulators in identifying weakly capitalized insurers. State regulators are now making changes to the calculations related to certain asset factors, such as bonds and real estate, because of what could be a substantial impact by the federal Tax Cuts and Jobs Act on the industry's capital adequacy requirements.

An NAIC working group addressing the matter said it would try to complete all work to adjust the RBC calculation for 2018, but if it cannot get all its changes adopted by June 30, it may decide to push the implementation to the 2019 tax reporting year. At the NAIC's spring meeting in Milwaukee, Florida Insurance Commissioner David Altmaier, who chairs the Financial Condition Committee, said the group is maintaining a flexible approach to the timeline.

The tax law changes "are going to have a significant impact on the RBC requirements for life insurance companies," the American Council of Life Insurers, or ACLI, said in a Feb. 12 letter to the NAIC's Financial Condition Committee. The trade organization said RBC ratios are expected to drop for all life insurers.

The ACLI said that while negative events such as a bond default will be "amplified" under the new corporate tax regime, such events should generally be offset by higher after-tax earnings. The general solvency position for the "vast majority" of companies will not be changed, it added.