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Efforts to Reform NAIC Investment Guidelines: Lessons Learned from History

Shifts in insurers’ investment strategy over the last decade have motivated state regulators to embark on broad reforms to govern the new landscape better. Given the scope of change, possible unintended consequences are top of mind. Our latest report explores the lessons learned from past revisions to guidelines and unintended consequences for investment strategy and capital markets more broadly. Importantly, we relate those lessons to current efforts to revise guidelines, including:

  • Proposals related to designations and limiting the use of agency ratings

  • The proposed interim increase in capital to 45% for residual tranches of structured assets


We do this through two case studies:

  • The 2009 Mortgage-Backed Securities (MBS) reform introduced model-based designations to replace agency ratings. The change was partly to provide capital relief for insurers holding MBS tranches that were downgraded due to deteriorated real estate values that came with the Great Financial Crisis (GFC). However, the change also incentivized insurers to hold on to and invest in new sub-investment grade MBS. In their study, Regulatory Forbearance in the U.S. Insurance Industry: The Effects of Removing Capital Requirements for an Asset Class, Becker, Opp and Saidi, show that by 2015, insurers’ sub-investment grade MBS comprised over one-third of their overall MBS holdings, dwarfing the 5% observed for other asset classes (figure 1 from their study reproduced)

  • The so-called C1 bond factor cliff associated with the punitive pre-2021 NAIC 3 designation, is roughly equivalent to the S&P BB credit rating. In a separate study, Regulatory Pressure and Fire Sales in the Corporate Bond Market, Ellul, Jotikasthira, and Lundblad explore patterns related to insurers selling bonds when downgraded below investment grade. With insurers being the most significant single bond market participant, often holding one-third of all outstanding investment-grade corporate bonds, the collective divesting of downgraded issues resulted in a ‘fire sale’ with transaction prices deviating from fundamental values by a substantial median of 11%. Unfortunately, insurance companies that faced capital structure constraints were more likely to sell downgraded bonds, putting further strain on their solvency.

Supporting the investment and regulatory community to navigate increasingly complex capital markets


Our latest highlights - with much more to be found in News & In Print

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Trends in the Ownership Structure of US Insurers and the Evolving Regulatory Landscape, Q2 2023 Insurance AUM Journal 


The United States insurance regulatory landscape is experiencing broad changes in reaction to noticeable shifts in ownership structure that have resulted in changing conditions in investment markets and the financial services industry. This report explores insurance industry trends and evolving NAIC guidelines designed to support the new landscape. The report includes a review of how the new rules help address possible concerns with conflicts of interest associated with forms of ownership and control. 

About the Authors

Amnon Levy founded Bridgeway Analytics which supports the investment and regulatory community in navigating complex capital markets. Amnon has led the development of award-winning quantitative solutions actively used by 200+ financial institutions and their regulators, including 2021 redesigned NAIC C1 bond factors.


Bill Poutsiaka is a senior financial services executive with considerable experience and accomplishments, including successful strategic and operational transformation as CEO, Chief Investment Officer, and board member for global insurance and asset management businesses.


Scott White is the Virginia Commissioner of Insurance and Secretary-Treasurer of the National Association of Insurance Commissioners (NAIC).  He is also a member of the International Association of Insurance Supervisors (IAIS) Macroprudential Committee. He served as Chair of the NAIC’s Financial Condition (E) Committee from 2020-2022.

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The NAIC Spring National Meeting brought progress as regulators gained a better understanding of the issues that need to be addressed with the Risk Based Capital framework treatment of investments. Regulators and NAIC staff are finding a need to refine the rules to better align with the growth of insurers’ investments in the likes of CLO tranches, feeder notes and the broad set of structured assets. Amnon Levy's session on InsuranceAUM.coma and our report review recent developments along with possible outcomes and their implications.

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The United States insurance regulatory landscape is experiencing broad changes in reaction to noticeable shifts in ownership structure that have resulted in changing conditions in investment markets and the financial services industry.


Join Virginia Commissioner of Insurance and Secretary -Treasurer of the NAIC Scott White, Bridgeway Analytics' Amnon Levy, and InsuranceAUM's Stewart Foley explore insurance industry trends and the evolving NAIC guidelines designed to support the new landscape.

Warren Buffet famously said, “You can’t tell who’s swimming naked until the tide goes out.”


Liquidity Matters: A Panel of Experts' Discussion explores the regulatory and practical considerations with liquidity management in the insurance industry. With a troubled banking system in the backdrop, along with possible changes to NAIC reserving, and balance sheet and liquidity management guidelines, understanding practical considerations with liquidity management couldn't be more critical.

Join Amnon Levy on a panel with Bill Poutsiaka, who had first hand experience recapitalizing AIG as a CIO after their collapse, Geoffrey Cornell, former CIO of Corebridge Financial and Michael Ashton, the Inflation Guy on a panel moderated by's Stewart Foley to explore these issues. 3-21-2023 liquidity.jpg
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With the NAIC and regulators citing concerns over rating agency commercial interests biasing risk assessments and the appropriateness of using agency ratings in capturing tail risks, questions remain over what designations are intended to measure, and the degree to which the proposed intrinsic-price approach is an improvement. This report benchmarks the performance of NAIC intrinsic price designations against market-based measures, and explores the lessons learned from the treatment of structured assets across regulatory jurisdictions. We find that:

  • Intrinsic-price-based designations benchmark poorly to market spreads when compared to agency ratings. Despite data quality limitations, our analysis suggests the poor performance is, in part, inherent with the methodology whereby credit will generally receive higher quality designations as it approaches maturity. This maturity effect is a departure from the C1 framework, and can result in shorter dated, high-spread credit with low quality agency ratings (e.g., BB or B) assigned high quality intrinsic price designations (e.g., 1.a or 1.d)

  • Other regulatory frameworks often differentiate credit across agency rating categories and remaining maturity. Our estimates suggest remaining maturity may receive more punitive capital treatment under intrinsic-price-based NAIC designations than any other regulatory framework explored, including Solvency II and IAIS ICS

Critical to the discussion, we provide possible approaches that can more closely align the intrinsic price approach with the C1 RBC framework and identify characteristics that are associated with assets whose designations benchmark poorly, which can be used as a starting point for a more comprehensive study that can be used by the NAIC to improve upon their methodologies.


We hope you find this resource helpful – it is consistent with our goal of bringing value to our community.

By Amnon Levy and Brett Manning

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Our report, Benchmarking the Treatment of CLOs, was recently featured in Green Street's Asset Backed Alert!  

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Our latest publication in Insurance Asset Risk. The NAIC and regulators have been deliberate about ensuring the process of revising the treatment of CLOs remains transparent and importantly, have been open for feedback and discussion, with requests by the NAIC staff for actionable alternatives to proposed models. While increased involvement from interested parties will involve distillation of more information, we believe the end result will lead to an improved framework.

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