In August 2025 at their Summer National Meeting, the National Association of Insurance Commissioners (the NAIC) adopted three changes that will impact our client companies.
See the NAIC’s press release immediately below, then scroll further down for our executive summary of the impact on our client companies.
NAIC Press Release: NAIC Adopts Key Initiatives to Help Ensure Payment of Claims
Last week, during the National Association of Insurance Commissioners’ (NAIC) Summer National Meeting in Minneapolis, Minn., NAIC members voted to adopt three proposals that will further protect consumers by helping guarantee insurers have the resources to pay policyholders’ claims. This action comes after the NAIC Life Insurance and Annuities (A) Committee passed the proposals in July.
“One of our most important responsibilities as state insurance regulators is ensuring companies are responsible financial stewards and have the resources to keep their obligations to policyholders. These initiatives will increase the information available to regulators and companies to help each make the best decisions in an evolving landscape and marketplace. I want to thank all the regulators who developed and advanced each of these products for their outstanding work,” said Ohio Department of Insurance Director and NAIC Life Insurance and Annuities (A) Committee Chair Judith L. French.
NAIC members adopted:
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- A new Generator of Economic Scenarios (GOES), which is designed to capture both the low-interest-rate environment of the last decade and the rate increases seen in the past few years. The updated generator will be used in life insurers’ calculations of principle-based reserves and capital needed to pay future claims.
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- Principle-based reserving requirements for non-variable (i.e., fixed) annuities, which have become popular under the higher interest rates of the past few years. This approach is designed to more accurately capture risk across a broad array of non-variable annuity products while promoting sound risk management practices at life insurance organizations.
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- Actuarial Guideline 55, which requires additional disclosures on certain reinsurance contracts to ensure life insurance companies still have adequate reserves after transferring risk to a reinsurer. This new requirement is especially important given life insurers’ increased use of reinsurance as they seek more capital to support rising sales of fixed annuities.
Executive Summary of the Impact on Our Client Companies
The new Generator of Economic Scenarios (GOES) will not go into effect for the 12/31/2025 financial statements of our client companies. The NAIC is working towards having it go into effect for the risk-based capital C-3 cash flow testing effective for the 12/31/2026 financial statements, but that is not yet a certainty. There is a proposal on that matter that is out for public comment through 9/19/2025.
If it does go into effect for the 12/31/2026 risk-based capital C-3 cash flow testing, we see that the new GOES currently has a bias towards interest rates going down over time, versus the current scenarios which have a bias towards rates going up over time. In that aspect, GOES would be good for companies whose most problematic scenarios are the up interest rate scenarios. However, GOES will produce more lower-for-longer interest rate scenarios, which may prove troublesome for clients whose in force books have relatively strong lifetime interest rate guarantees. So, each client company will experience a unique impact.
The principle-based reserving methodology has a small company exemption, such that it does not apply to any company with less than $1 billion of gross annuity reserves. For larger companies, the principle-based reserving methodology can be used as soon as the first quarter of 2026, but it is not required until the first quarter of 2029. For companies with over $1 billion of gross annuity reserves, it is possible that reserves under this new approach will be lower than they otherwise would be. But, the principle-based reserving methodology requires additional actuarial work to calculate and justify the reserves, similar to a quarterly cash flow testing.
Actuarial Guideline 55 requires some additional cash flow testing work and documentation for companies that have done an annuity reinsurance deal of over $100 million in reserves with an entity not required to submit a VM-30 memorandum to a US state regulator. However, we do not expect the Guideline to have a material impact on their financial statements.
If you would like to know more about these regulatory changes, please give us a call. We want all of our client companies to be informed as to how these regulatory changes will affect them.