Capstone believes the National Association of Insurance Commissioners (NAIC) is approaching life insurer investment in complex assets through targeted moves related to disclosure and transparency, as well as tactical changes to capital charges, and is not looking to severely limit investment in such assets, a positive for life insurers and credit rating firms.
- The NAIC convened its summer meetings in August 2026, bringing together state insurance regulators and industry across life, P&C, and other markets.
- The NAIC remains focused on ensuring that life insurer investment in complex assets does not pose systemic or policyholder risks but is not aiming to severely limit such investment. It will continue with a tactical approach aimed at ensuring transparency, safety, and soundness rather than disruption, a positive for life insurers and credit rating firms.
Policymakers Remain Focused on Life Insurer Investment Practices
Life insurers’ investment and capital management practices have faced continuous regulatory scrutiny from the NAIC since at least the early 2020s, as life insurers increased allocations to complex, often less liquid, private assets in pursuit of higher yield. Those trends—both life insurer investment in complex private assets and policymaker interest—remain ongoing.
Headlines about The Walter Group (TWG), Delaware Life Insurance Company, and Clear Spring Life and Annuity Company highlight some of the NAIC’s core concerns.
In February 2026, Delaware Life Insurance Company and Clear Spring Life and Annuity Company, both owned by Guggenheim Partners, Inc., announced they had received grand jury subpoenas from the US Attorney’s Office for the Southern District of New York, were under investigation by the Securities and Exchange Commission (SEC), and were facing scrutiny from the Delaware Department of Insurance. The investigation, which began last year, initially focused on Guggenheim’s $362 billion asset management business before expanding to its insurance affiliates. Shortly after receiving subpoenas, it was reported that $21 billion in outstanding loans invested in by the life insurers were not properly disclosed as affiliated. Following a reclassification effort, Delaware Life’s affiliated investments increased from 3% of invested assets to roughly 42%, suggesting either willfulness or a systemic governance failure. Regardless, Fitch, S&P Global, and AM Best have revised both insurance companies’ outlooks to negative as the life insurers implement remediation efforts to restructure their affiliated investments by year-end.
The companies also face a private class action. On September 10, 2026—on the back of the same headlines—Senator Elizabeth Warren (D-MA) sent a letter to the NAIC requesting details on the body’s oversight of life insurer ties to private investment firms and increased exposure to complex, private asset classes. The quasi-regulatory body’s letter in response details the breadth of insurance regulators’ efforts across relevant policy issues.
The ongoing TWG investigation and Warren letter indicate continued policymaker concern around life insurer investment of policyholder premiums in complex and opaque asset classes and affiliated arrangements, where conflicts of interest may influence risk tolerance and ultimately threaten a life insurer’s solvency. This report provides an update on a key subset of associated NAIC activities.
NAIC Continues Tactical Reforms Aimed at Increasing Oversight of Insurer Investments
Insurer investment strategies have evolved since the 2008 Global Financial Crisis as carriers pursued investment in higher-yielding private placement bonds and private structured securities. As of year-end 2025, 48.4% of total life industry bonds were private, up from 37.4% five years earlier, according to S&P Global data.
Amid the trend, the NAIC has worked to implement a targeted series of reforms, many of which find their foundation in a list of 13 regulatory considerations released by the Macroprudential Working Group (MWG) in 2022. That list—which includes policy concerns about affiliated investments, perceived overreliance on third-party credit rating agencies, and the sufficiency and arbitrage of risk-based capital (RBC) requirements, among other considerations—has structured relevant NAIC activities in this domain since.
Most of NAIC’s key reforms are targeted, though they remain at different stages (see Exhibit 1). Two have taken effect: (1) the Principles-Based Bond Definition (PBBD), effective January 2025, which adjusted the definition of bonds and forced life insurers to reconsider their investment disclosure schedules to promote greater transparency and (2) the Discretion Amendment, effective January 2026, which authorizes the NAIC’s Investment Designation Analysis (E) Working Group (IDAWG) to flag an asset’s private credit rating for further regulatory review when it believes the rating does not reasonably reflect investment risk, subject to various procedural safeguards for insurers and credit rating providers (CRPs). These credit ratings tie into NAIC designations and insurer RBC requirements.
Two other initiatives remain in progress: (1) the Credit Rating Provider (CRP) Due Diligence Framework, which we discuss in detail throughout the note, and (2) a broader RBC modernization effort, including the newly adopted C-1 asset risk factors for select collateralized loan obligations (CLOs).
Exhibit 1: NAIC Initiatives to Enhance Oversight of Insurers’ Capital Management Practices
| Initiative | Description |
| Securities Valuation Office Discretion Amendment | As of January 1, 2026, the NAIC can challenge “materially higher” (three notches) credit ratings relative to NAIC designations, subject to procedural safeguards for insurers, including the ability to seek a second rating, a hearing, and the requirement that the IDAWG defend its ratings. The NAIC believes it will rarely exercise this authority. |
| CRP Due Diligence Framework | The NAIC framework, still in development, will likely enhance data collection and establish gating criteria for NAIC acceptance of Nationally Recognized Statistical Rating Organization (NRSRO) ratings for insurer investments under the “filing exempt” process by which most insurer investments are rated. |
| PBBD | Effective in 2025, this statutory accounting change aimed to enhance disclosure and transparency of insurer investments by reclassifying some assets historically classified and reported as bonds. The NAIC shifted to a “principles-based” definition that emphasizes a security’s substance over its legal form. |
| Insurer Solvency and Capital Adequacy | The NAIC’s review of its RBC framework is ongoing amid rising insurer investment in alternative asset classes, though the effort is slow-moving. RBC requirements determine how much capital an insurer must hold based on its operations, assets, and scale. |
Source: NAIC
Most of the updates from the NAIC’s summer meetings in August 2026 on these items are tactical. During the meetings, theFinancial Stability (E) Task Forcemet with theMacroprudential (E) Working Group (MWG) and exposed theMacroprudential Risk Dashboard Summary Report—a regulator-only dashboard that summarizes key risk indicators facing the insurance industry—for a 30-day public comment period ending September 10, 2026.The dashboard highlights private credit as a material credit risk, citing insurers’ aggregate exposure and limited visibility into borrower fundamentals and timely valuations.
Relatedly, the Financial Analysis Solvency Tools (E) WG exposed proposed revisions to the NAIC’s Financial Analysis Handbook with enhanced guidance for insurance regulators assessing private asset exposures. The proposed guidance would provide state Departments of Insurance (DOIs) with information on insurers’ private credit assets, including privately rated securities (PRSs), enabling them to identify liquidity, transparency, valuation, and pricing risks.
Taken together, these initiatives highlight regulators’ prioritization of enhanced disclosure and transparency, consistent with the NAIC’s broader oversight of insurers’ private credit exposure.
Credit Rating Provider Due Diligence Framework Likely to Face Revision
Growth in insurers’ holdings of private credit assets has corresponded with an increase in insurers’ use of private letter ratings (PLRs) issued by NRSROs (or CRPs), which are registered and licensed by the SEC. Most private credit and structured investments lack public ratings, pushing insurers to rely on PLRs through the filing-exempt process to receive NAIC designations, which ultimately inform RBC requirements. This creates a jurisdictional gap between the CRPs producing the ratings and the NAIC, which has limited authority to vet or directly oversee third-party CRPs. Disparities between PLRs and NAIC designations prompted the CRP Working Group to propose a due diligence framework as a gating criterion for third-party CRPs to rate insurer investments.
After reviewing data from the eight CRPs that provide credit rating services to the NAIC in response to a 2025 data call, the CRP Working Group exposed the NAIC CRP Due Diligence Framework – Whitepaper for comment in May 2026. The white paper sets out a four-part due diligence framework designed to serve as an ongoing monitoring tool to support the NAIC and the Invested Assets (E) Task Force to “reduce blind reliance on CRP ratings, promote transparency into the equivalency of CRP ratings, and provide disciplined methods for identifying and remediating inconsistencies in ratings outcomes.” The four-part framework consists of the following elements:
- Scoping: The NAIC would conduct preliminary scoping activities to target new CRPs, new asset classes, or revisions to CRP asset class methodologies deemed significant for evaluation. The NAIC would also conduct quantitative and qualitative scoping activities to identify areas of risk and the reliability of CRP ratings based on regulatory review findings.
- Risk Assessment: The NAIC would use quantitative methods to assess equivalency, appropriateness, and consistency of a CRP rating to NAIC designation mapping. The assessment serves as the analytical bridge between Scoping (what to examine) and Detailed Testing Procedures (how to examine), allowing the NAIC to take a data-driven approach to determining comparable CRP ratings.
- Detailed Testing Procedures: These procedures would be performed to verify the reasonableness and consistency of CRP ratings when the Scoping and Risk Assessment indicate elevated risk. The testing would determine whether future due diligence activities or remedial action is needed to ensure that reliance on CRPs and matrix outcomes is governed by sufficient NAIC oversight.
- Governance: This component outlines processes for overseeing and monitoring the CRP framework, including the process for advising reviewed CRPs of any recommended remedial action.
At its core, the proposed framework does not plan to assess insurer-specific exposure or opine on whether a given rating is “correct,” instead evaluating the risk characteristics of rating cohorts, the degree of alignment, or divergence across CRPs (especially relative to NAIC designations), and whether reliance on those ratings is appropriate for regulatory purposes.
Industry stakeholders—including NRSROs and trade associations—generally supported the proposed framework, while acknowledging that it remains in the initial review phase and warrants further consideration. Specifically, stakeholders raised concerns about methodological issues, the risk of penalizing analytical diversity through remediation actions, duplicative regulatory overreach into policy questions the Credit Rating Agency Reform Act reserves to the SEC, and the potential for newer asset classes to face heightened scrutiny solely because of limited historical or performance data even where there is no underlying quality problem.
The CRP Working Group has directed staff to revise the proposed framework to address stakeholder feedback but has not set a timeline for releasing a revised proposal. We will continue to monitor further developments, as the CRP Working Group’s ultimate approach, whether as a harmonization tool or a governance and transparency approach, creates risks and opportunities for the demand for NRSROs’ credit rating services. As proposed, the framework’s requirements generally favor sophisticated incumbent CRPs with longer operating histories and established, rigorous rating processes.
Executive Committee’s RBC Efforts Remain Slow-Moving
Also catalyzed by increasing insurer allocations into private and complex asset classes, the NAIC’s review of the RBC framework remains ongoing but slow-moving. At the summer meetings, the RBC Model Governance (EX) Task Force highlighted progress on its charges to analyze and address gaps and inconsistencies in the RBC framework. The task force proposed a path forward, including efforts to:
- Complete the RBC governance framework: Confirm that the framework established through the revised RBC Preamble and the RBC Model Governance principles adopted in 2025 provides a durable means of applying those principles.
- Finalize RBC educational and public messaging materials: Complete and distribute materials explaining the purpose, benefits, and limitations of RBC and its role within the US state-based insurer solvency framework.
- Develop a focused two-year RBC priority agenda: Identify approximately 5–7 material RBC gaps or modernization projects for committee consideration during 2027–2028. The two-year period is intended to provide a planning, sequencing, and accountability horizon, not to require completion of every project within that timeframe.
Between now and the NAIC’s November meetings, the task force plans to identify those 5–7 “material gaps.” Task Force Chair Jon Godfread reiterated that the agenda should aim to target gaps that effect “the integrity, consistency, responsiveness, and appropriate use of the RBC framework.”
NAIC Adopts Modified RBC Treatment for Certain CLO Tranches
Even as the RBC Model Governance Task Force moves slowly, the RBC Investment Risk and Evaluation (E) Working Group voted on June 23, 2026, to adopt revised RBC factors for life insurers’ investments in CLOs. This marked the culmination of a multiyear effort dating back to 2022, when the working group first began working with the American Academy of Actuaries (AAA) to address RBC arbitrage within CLO securities. At an interim session in July 2026, the Financial Condition (E) Committee approved the new framework, which will take effect with filings dated December 31, 2026.
At year-end 2024, US insurers held $277 billion in CLOs, representing about 5.1% of the total bonds and 3.1% of the total cash and invested assets across the industry. CLO exposure, like private credit, has drawn regulatory attention because of complexity, opacity, affiliated asset manager arrangements, and the need to ensure insurer solvency oversight remains aligned with actual investment risk.
The adopted framework applies a single rating-based factor table across broadly syndicated loan (BSL) CLOs, middle-market (MM) CLOs, collateralized debt obligations (CDOs), and collateralized bond obligations (CBOs), reducing RBC charges for senior investment-grade tranches (Aaa–A2) and increasing them for tranches rated Baa3/BBB- and below. For MM CLOs, CDOs, and CBOs, this rating-based factor applies uniformly regardless of tranche thickness.
Only BSL CLOs are subject to the additional tranche thickness factor (see Exhibit 2). Tranches rated Baa3/BBB- or below with a thickness of 4% or less receive an 11.77% surcharge on top of the base RBC factor. The change stirred pushback from industry over added complexity, but it would only affect a small share of insurer holdings. AAA data presented by C-1 Subcommittee Chair Stephen Smith highlighted that ~87.6% of insurer BSL CLO holdings, by value, are rated A2 or higher and would see reduced RBC factors under the new framework, a favorable development for life insurers with exposure to these assets.
Exhibit 2: Modeled C-1 RBC for Investment- and Non-Investment-Grade BSL CLOs
| Investment Grade | Below Investment Grade | ||||||
| Rating | Simple Average Raw -C1 | Modeled C-1 RBC | Rating | Simple Average Raw C-1 | Modeled C-1 RBC | ||
| Thickness >4% | Thickness ≤4% | Thickness >4% | Thickness ≤4% | ||||
| Aaa | 0.04% | 0.04% | Ba1 | 24.88% | 15.14% | 26.91% | |
| Aa1 | 0.34% | 0.05% | Baa2 | 32.90% | 25.15% | 36.93% | |
| Aa2 | 0.00% | 0.05% | Baa3 | 34.76% | 27.99% | 39.76% | |
| Aa3 | 0.00% | 0.05% | B1 | 20.84% | 31.30% | 43.07% | |
| A1 | 0.48% | 0.17% | B2 | 37.03% | 42.31% | 54.08% | |
| A2 | 0.13% | 0.17% | B3 | 67.78% | 56.88% | 68.65% | |
| A3 | 0.14% | 0.97% | Caa1 | 69.23% | 57.84% | 69.61% | |
| Baa1 | 1.90% | 2.18% | Caa2 | 79.94% | 66.34% | 78.12% | |
| Baa2 | 3.63% | 3.24% | Caa3 | 92.94% | 85.12% | 96.89% | |
| Baa3 | 7.14% | 3.28% | 15.05% |
Source: AAA, NAIC
We view the adopted changes as relatively favorable for the life insurance industry, given roughly 80% of CLO holdings (broader than the BSL CLO holdings cited above) were rated BBB/Baa2 or higher as of year-end 2024. While forcing reconsideration of allocations to BSL CLOs given the RBC surcharge, the adjustment is tactical. We note that the change is likely to drive insurers to be more selective across the CLO capital stack and, because the new tranche-thickness surcharge applies only to thin and more poorly rated BSL CLOs, support demand for MM CLOs, senior debt, and other higher quality assets.
Additionally, we note two takeaways as the NAIC continues its broader review of the sufficiency of the existing RBC regime. First, the changes indicate that regulators are focused on whether capital charges capture the risks embedded in structured products, moving away from deference to third-party CRP ratings. Consistent with other NAIC initiatives, we view this as a durable trend. The NAIC is getting more hands-on. Second, the higher charges target riskier tranches of CLOs to eliminate RBC arbitrage, suggesting the NAIC will pursue tactical, targeted adjustments to RBC requirements on a go-forward basis. We neither expect the NAIC to dramatically renovate the applicable RBC regime nor do we view severely constraining life insurer investment in higher-yielding asset classes as the NAIC’s ultimate policy goal. The NAIC is principally concerned with solvency risks.
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