NAIC C-2 Longevity Risk RBC Charge: Framework Takes Shape for PRT and Longevity Reinsurance

At the Spring 2026 National Meeting in Indianapolis, the American Academy of Actuaries' Longevity Risk Task Force walked the NAIC's Longevity Risk (E/A) Subgroup through revised responses on retained and ceded longevity exposure.

The proposal is a scenario-based stress sitting inside C-2 insurance risk rather than bolted onto C-3, with a year-end 2027 target effective date. It is the first draft since 2017 where the Academy and the Subgroup agree on the direction of the ceded charge.

Key Takeaways

C-2, not C-3. Longevity is a mortality and behavior risk, so the charge sits with mortality rather than with interest and equity risk, and it collects the square-root covariance benefit against C-1 and C-3.
$153 million gross falls to about $110 million net of covariance on a modeled $10 billion book, roughly 12 to 15 basis points of total adjusted capital for a typical mid-size writer.
A 1.5 percent additional annual mortality improvement on an 11-year duration book raises the present value of annuity cash flows by 5.5 to 6.5 percent, against which a 35 percent capital factor is applied.
$3 billion of well-collateralized Bermuda cession draws about $6 million. The ceded factor runs roughly 8 to 12 percent of the retained equivalent, tied to counterparty designation, collateral and recapture terms.
50 to 80 basis points of additional capital cost on a $500 million group annuity quote, against a current implicit capital cost of 3 to 4 percent of premium.

What the Subgroup Actually Proposed

US life risk-based capital has always treated longevity implicitly, through a flat C-2 factor on annuity reserves that does not distinguish a single premium immediate annuity from a group annuity contract backing a pension risk transfer. The Subgroup's premise, refined across exposure drafts since 2017, is that the growth of the PRT market and an active longevity reinsurance market have outrun that treatment.

Placing the explicit charge in C-2 rather than C-3 is a substantive choice, not a filing convenience. Longevity manifests as actual-versus-expected deaths on a block of in-payment annuitants, and the present value of the resulting cash flow deviation is what capital has to absorb. Interest and equity risk stay in C-3, mortality and longevity in C-2, asset credit in C-1.

Covariance is the other reason it matters. The RBC formula applies a square-root covariance adjustment across C-1 through C-4 in recognition that risks do not crystallize together, so a C-2 charge is softened by a writer's existing asset and interest positions in a way a standalone add-on would not be.

The framework has three building blocks. Retained payout annuities take a deterministic stress calibrated to roughly a 1-in-200 outcome over one year. Ceded positions take a reduced charge reflecting counterparty credit rather than direct mortality. Assumed longevity, written by reinsurers and sidecars, takes the retained stress net of retrocession.

Running the Charge Through a Book

The design question is settled; the sizing question is what a 2027 capital plan needs, and it is answerable from the draft.

Take a mid-size US writer with $10 billion of longevity exposure, half single premium immediate annuities written directly and half group annuity PRT closed over three years, with 60 percent of the PRT ceded to a well-collateralized Bermuda reinsurer. That leaves $7 billion retained and $3 billion ceded.

A 1.5 percent additional annual mortality improvement on the retained book, at a representative duration near 11 years, raises the present value by 5.5 to 6.5 percent, or about $420 million. The draft's 35 percent capital factor turns that into the retained charge. The ceded stress is calculated on the same basis and then cut to the counterparty factor, which for a collateralized Bermuda cession runs an order of magnitude below the retained equivalent.

Exposure Component	Reserve Base	Stressed PV Increase	Capital Factor	Gross Charge
Retained SPIA	$5.0B	~$300M	35%	~$105M
Retained PRT	$2.0B	~$120M	35%	~$42M
Ceded PRT (well-collateralized BDA)	$3.0B	~$180M	~3.5% effective	~$6M
Total gross C-2 longevity	$10.0B			~$153M
Net after covariance				~$110M

The two features worth reading off that walk are the size of the ceded line and the size of the covariance step. A $3 billion cession drawing roughly $6 million is the intended result of the Task Force's refinement; earlier drafts applied the retained stress at a flat 50 to 70 percent reduction, which commenters argued overstated residual risk at collateralized treaties with investment-grade counterparties.

That flows straight into a quote. A $500 million group annuity deal carrying a capital cost of roughly 3 to 4 percent of premium under the implicit treatment picks up an additional 50 to 80 basis points under the explicit charge, which compresses margin on fixed-price quotes and forces repricing where experience refund provisions exist. Set against Solvency II, which applies a flat 20 percent mortality reduction, UK bulk annuity writers price longevity capital at 3 to 5 percent of gross liability present value; the modeled US charge lands near 1.5 percent before covariance, so the calibration is conservative rather than punitive against international peers.

Where the Ceded Design Creates New Exposure

The charge's sensitivity to counterparty attributes is what makes it workable, and it is also what moves risk from the capital formula into treaty language.

Because the ceded factor depends on NAIC designation, collateral structure and recapture terms, two economically similar cessions can draw materially different charges. A treaty with a strong recapture trigger on reinsurer downgrade effectively caps the cedant's tail capital exposure. A treaty written without one carries a higher effective charge, because the credit deterioration scenario the factor table prices is not mitigated. Treaty terms negotiated before this framework existed were not drafted against that test.

Thinly capitalized writers get less relief than the modeled case suggests. The covariance offset is large for a company with substantial C-1 and C-3 positions; a monoline PRT writer or a longevity-only reinsurer with limited asset risk sees a smaller offset and therefore a bigger net impact per dollar of gross charge. The structure rewards diversified balance sheets, which is not obviously what a longevity charge was meant to do.

The timing compounds it. The Summer 2026 C-3 field test on the Generator of Economic Scenarios, covered in the GOES field test analysis, the CLO factor recalibration at the Risk-Based Capital Investment Risk and Evaluation Working Group, and this charge all land in roughly an 18-month window. A platform acquiring a US PRT writer faces an asset-side and a liability-side recalibration at once, which is the structure behind the Brookfield-Just class of transaction.

Comment letters that argue the longevity framework in isolation therefore argue the wrong question. A carrier with a weak capital position does not meet three charges sequentially at year-end 2027; it meets them together, and whether the Subgroup stages adoption or offers transition relief is the variable that decides whether the framework arrives as a recalibration or as a cliff.

NAIC C-2 Longevity Risk RBC Charge: Framework Takes Shape for PRT and Longevity Reinsurance

Key Takeaways

What the Subgroup Actually Proposed

Running the Charge Through a Book

Where the Ceded Design Creates New Exposure

Further Reading

Sources