NAIC referral could raise US life insurer RBC on recapture exposures

US life insurers could face a more explicit capital charge on some reinsurance recapture exposures under work the NAIC Financial Condition Committee kicked off at its August 14 meeting, with implementation targeted for year-end 2027. The committee approved a referral to the Life Risk-Based Capital Working Group to develop a reinsurance recapture RBC factor for ceded reserves and modified coinsurance balances outside reciprocal jurisdictions.

That would make explicit a capital cost for ceded reserve structures that could come back onto the ceding insurer's balance sheet, because the proposed factor is intended to reflect the additional capital needed if recapture occurs.

The same referral also directed work on aligning the life RBC reinsurance credit-risk methodology with the property and casualty RBC approach. That change is intended to account for reinsurers with lower financial strength ratings, which could tighten capital treatment for exposures to weaker-rated counterparties.