NAIC C-2 Longevity Risk RBC Charge: The PRT Factors in Force and the Open Line for Longevity Reinsurance

Correction, October 9, 2026: an earlier version of this article said US life RBC had always treated longevity implicitly, through a flat C-2 factor on annuity reserves. Page LR025-A has carried an explicit, tiered longevity C-2 charge since year-end 2021, applying the same factors to payout annuities and to group annuities backing pension liabilities. For 2026 the NAIC instructs filers to enter zero for assumed longevity reinsurance, and the factor that replaces it is still being calibrated.

The earlier version also called the longevity reinsurance design settled and gave a 35 percent capital factor on a 1.5 percent mortality improvement stress, a ceded factor of 8 to 12 percent of the retained charge, a one-year 1-in-200 calibration, a 2027 effective date and a $153 million charge on a modeled $10 billion book. None could be traced to an NAIC or Academy document. They have been removed with the capital walk, quote pricing and UK comparison built on them, and the article rewritten from the primary documents listed under Sources.

US life risk-based capital has charged longevity explicitly since year-end 2021, when the Capital Adequacy (E) Task Force adopted tiered factors for page LR025-A on June 30, 2021 (NAIC proposal 2021-13-L). Payout annuities, deferred income annuities, structured settlements and group annuities backing pension liabilities all sit in scope. Longevity reinsurance was left out. The NAIC gave it a line of its own this year and told filers to enter zero on it for 2026, while the American Academy of Actuaries works on the shocks that would replace the zero.

Key Takeaways

1.71% to 0.89% pre-tax is the range of the LR025-A factors on in-scope life-contingent annuity reserves, stepping down at $250 million, $500 million and $1 billion, calibrated to the 95th percentile over the lifetime of the policies.
$91.8 million pre-tax is the requirement on a $10 billion in-scope book, an effective 0.92%, or about $72.5 million after the 21% tax adjustment the factors assume.
-0.25 is the correlation between longevity and life mortality C-2, with a guardrail factor of 0, so a writer whose longevity charge is under half its mortality charge carries less total C-2 than it would with no annuities.
Zero is the 2026 entry for assumed longevity reinsurance under proposal 2026-07-L, adopted by the Capital Adequacy (E) Task Force on May 14, 2026.
116% and 140% are the mortality improvement shocks below and above age 85 behind today's annuity factors; the Academy's July 28 deck puts the improvement shock's structure and size first on its list of open work for longevity reinsurance.

How LR025-A Charges a Payout Annuity or PRT Book

The factors represent surplus needed to cover claims in excess of reserves from increased longevity, calibrated to the 95th percentile, with aggregate reserves assumed to cover the 85th. The horizon is the lifetime of the policies, since payout annuities are generally not repriced. The calibration combines trend risk in future mortality improvement, which applies to every book equally, with level and volatility risk from misestimated or fluctuating current mortality, which shrinks as a portfolio grows (NAIC proposal 2026-07-L, LR025-A instructions). Statutory reserve is the exposure base, and the factors fall by reserve tier as in a tax table.

Reserve tier	Pre-tax factor	Cumulative requirement at top of tier	Effective rate
First $250 million	1.71%	$4.3 million at $250 million	1.71%
Next $250 million	1.08%	$7.0 million at $500 million	1.40%
Next $500 million	0.95%	$11.7 million at $1 billion	1.17%
Over $1 billion	0.89%	$91.8 million at $10 billion	0.92%

On a $10 billion book, 87% of the requirement comes from the 0.89% tier, so a $3 billion writer and a $10 billion writer pay the same rate on the next dollar of PRT reserves. The factors were developed assuming a 21% tax adjustment, which takes the $10 billion figure to about $72.5 million.

The charge then joins life mortality C-2 under a square root with a correlation factor of -0.25, and the guardrail factor is 0, so no floor applies. When the two charges are equal, combined C-2 is about 1.22 times either one, or 61% of their sum. A company whose longevity C-2 is less than half its mortality C-2 ends up with lower total C-2 than it would carry with no annuities at all, bottoming at 96.8% of the mortality charge when longevity is a quarter of it. Total C-2 then enters the covariance adjustment as its own term, apart from the combined asset and interest rate risks.

Three Proposals and a Zero for Longevity Reinsurance

When the longevity charge was adopted in 2021, the Life Risk-Based Capital (E) Working Group left longevity reinsurance out, the Academy's Longevity Risk Task Force reminded the Longevity Risk (E/A) Subgroup on February 2 (Academy letter). The reinsurer pays benefits tied to the covered annuitants' actual survival; the cedent pays premiums and fees fixed at inception. Under VM-22, effective for 2026, the reserve is the present value of benefits less future premiums and fees, floored at 2% of the next 12 months' benefits so it does not sit at or below zero for years, Subgroup chair Seong-min Eom told its February 9 meeting.

Three designs were on the table. New Jersey's applied the existing LR025-A factors to the next 12 months of scheduled benefits. ACLI's applied the existing breakpoints and factors to the present value of the floating leg, with credit for fixed cash flows not reflected elsewhere. The Academy's applied mortality trend and level shocks to projected benefits across the whole projection, using shock sizes an Academy group developed between 2017 and 2020. The Academy, and Utah's Tomasz Serbinowski, objected that the existing factors and breakpoints were calibrated to the present value of benefits and do not carry over to a 12-month metric.

Eom's concern ran the other way. Because the parties negotiate the fixed leg, a charge built on future fees could sit at zero for many years, and companies could shape the fee schedule to keep it there. Texas suggested flooring the Academy calculation, as C-3 Phase II does. In a straw poll Texas, Minnesota, Ohio and Iowa backed the Academy design with that floor, and Connecticut and New York later joined them (draft minutes, February 9, 2026).

What the NAIC adopted for 2026 is the structure. Proposal 2026-07-L, adopted by the Subgroup on April 9, the Working Group on April 23 and the Task Force on May 14, takes longevity reinsurance out of the reserve lines, adds a pre-tax line for its capital requirement and instructs filers to enter zero on that line for 2026.

What the Replacement Factor Has to Settle

The Academy's July 28 presentation to the Subgroup lists the open work in order: the structure and size of the mortality improvement shock, which it calls the most important, then the base mortality misestimation shock, calibration for liabilities originated outside the US, and whether to run one scenario or three (Academy illustrations, July 2026).

Today's annuity factors rest on improvement shocks of 116% below age 85 and 140% above, and on base mortality shocks to 94.2% of expected at the first $250 million tier and 99.3% at the over-$1 billion tier, where the deck says most companies sit. Its illustrations found that companies with material business written before COVID could have zero C-2, because floating-leg benefit payments on those blocks would run below what was assumed at pricing.

The ceding side is the gap ACLI flagged in its February 2 letter. It said the proposals deal with the assuming entity and leave open whether a cedent gets risk-transfer recognition for longevity reinsurance, a question that reaches the existing charge on SPIA and PRT business as well, and asked that the requirement sit with the entity that ultimately assumes the risk, with relief applied as for mortality C-2 (NAIC comment packet). Neither 2026-07-L nor the July deck addresses ceded credit. Pacific Life Re's $3 billion longevity treaty on American National's PRT liabilities closed on October 6 inside that gap.

Other regimes calibrate the same risk on a different clock. The Solvency II standard formula sets longevity capital as the loss from an instantaneous, permanent 20% decrease in the mortality rates behind technical provisions (Delegated Regulation 2015/35, Article 138), measured against a one-year 99.5% standard; LR025-A looks across the full lifetime at the 95th percentile. Once the Subgroup sets a nonzero assumed-side factor, the ceded-credit decision will determine whether one group of annuitants draws longevity C-2 on two US balance sheets or on one.

NAIC C-2 Longevity Risk RBC Charge: The PRT Factors in Force and the Open Line for Longevity Reinsurance

Key Takeaways

How LR025-A Charges a Payout Annuity or PRT Book

Three Proposals and a Zero for Longevity Reinsurance

What the Replacement Factor Has to Settle

Further Reading

Sources