The Life Risk-Based Capital (E) Working Group adopted Item 2026-02-L on April 30, 2026 without a dissenting vote, cutting the C-1 factor from 1.75% to 0.68% for residential mortgage loans held through unaffiliated joint ventures, partnerships, and LLCs. The change takes effect for December 31, 2026 RBC calculations, pending Capital Adequacy Task Force approval before June 30. It removes a capital difference that turned on the wrapper rather than the loan.

Key Takeaways

  • 1.75% to 0.68% on the C-1 factor for unaffiliated Schedule BA vehicles, with non-senior lien positions falling from 3.00% to the same 0.68% where the loans are in good standing.
  • $10.7 million freed per $1 billion held: required capital on a performing block drops from $17.5 million to $6.8 million.
  • 0.68% against 0.657% for an A1/A+ rated bond, which is the credit equivalence the Working Group has implicitly accepted for current, properly documented mortgages.
  • $117.4 billion of industry residential mortgage holdings at year-end 2024, up from $31.8 billion in 2020, with Athene alone moving from $11.8 billion to $21.9 billion in a single year.
  • 90 days past due is the cliff: a loan crossing it leaves the qualifying pool, so the capital charge is now a monitored variable rather than a static input.

What the April 30 Vote Changed

Before this vote, the same loan carried two different capital charges depending on how it was held. Directly owned residential mortgages reported on Schedule B took the favorable 0.68% C-1 factor. Held through an unaffiliated joint venture or LLC and reported on Schedule BA, they took 1.75% for senior lien positions and 3.00% for non-senior liens.

The Working Group had already extended look-through treatment to affiliated vehicles in 2024, on the reasoning that control gave the insurer access to loan-level information. The April 2026 vote drops the affiliation test entirely and replaces it with a loan quality test.

Holding Structure Previous C-1 Factor New C-1 Factor (2026) Capital Per $1B
Direct ownership (Schedule B) 0.68% 0.68% (unchanged) $6.8M
Affiliated JV/LP/LLC (Schedule BA) 0.68% (since 2024) 0.68% (unchanged) $6.8M
Unaffiliated JV/LP/LLC (Schedule BA) 1.75% (senior lien) 0.68% $6.8M (was $17.5M)
Unaffiliated JV/LP/LLC (Schedule BA) 3.00% (non-senior lien) 0.68% (if in good standing) $6.8M (was $30.0M)
A1/A+ rated bond (comparison) 0.657% 0.657% $6.57M

The conditions are specific. Each loan must be current or fewer than 90 days past due. A vehicle holding both performing and non-performing loans gets the 0.68% factor only on the performing subset. Commercial mortgages held through the same structures stay in the CM1 through CM5 categories at 0.40% to 6.50%. And the insurer must produce loan-level detail sufficient to show the good-standing test is met at the reporting date.

A parallel statutory accounting change runs alongside it. SAPWG amended SSAP No. 37 to allow residential mortgages held through a qualifying statutory trust to report on Schedule B rather than Schedule BA, provided the insurer owns 100% of the beneficial interest, the trust holds only mortgage loans, cash, and foreclosed real estate, and no other investor shares the series. The amendments are effective January 1, 2027 with early adoption permitted.

The Charge Follows the Loan, Not the Wrapper

At 0.68%, a performing residential mortgage now sits almost exactly where an A1/A+ rated bond sits at 0.657%. That is the substantive claim inside the vote: a pool of current, underwritten residential mortgages carries credit risk comparable to high-quality investment-grade corporate debt.

The difference is how the two are observed. A bond rating moves rarely and is published by a third party. Mortgage delinquency status moves between reporting periods and is measured by the insurer. Under the old rule the vehicle structure fixed the factor for the year; under the new one, the factor is a function of a portfolio attribute that can deteriorate inside a quarter.

That converts required capital into something asset adequacy testing has to model rather than assume. On a $1 billion block, the distance between qualifying and not qualifying is $17.5 million against $6.8 million, so a delinquency wave large enough to disqualify a meaningful share of the pool produces a capital step, not a gradient. Cash flow testing for insurers with concentrated allocations should carry the delinquency stress explicitly, because the sensitivity is discontinuous at the 90-day line.

The direction of travel elsewhere in the same Working Group sharpens the point. The Academy of Actuaries proposed raising below-investment-grade CLO factors from 2.73% to as high as 70.82% on thin junior tranches. Proposal 2025-16-L MOD declined look-through for collateral loans backed by JV, LP, or LLC equity, calibrating instead to loan-to-value with a 20% haircut and landing at proposed factors of 30% for equity-backed and 45% for residual-tranche-backed positions.

The common test across all three is whether a regulator can verify credit quality at the individual asset level. Residential mortgages pass it and get relief; structures whose risk sits in subordination mechanics do not, and pay more. For a PE-backed carrier the net capital effect depends on which of those two buckets holds more of its alternatives book.

The Relief Lands in a Book That Has Already Quadrupled

Industry residential mortgage holdings went from $31.8 billion in 2020 to $117.4 billion at year-end 2024, and moved from 11.2% to 14.9% of total mortgage loan holdings during 2024 alone. Athene nearly doubled its portfolio from $11.8 billion to $21.9 billion in a year, added a $4.2 billion book through Foundation Home Loans, and became the second-largest Federal Home Loan Bank borrower with $23.3 billion of advances at year-end 2025.

The NAIC opened a supervisory channel on that growth in the same season. The Invested Assets (E) Task Force held its first session in San Diego on March 22-25 with residential mortgage loans as the opening asset class, and its Investment Analysis Working Group named underwriting approach, loan structure, and real-time performance monitoring as focus areas. Wisconsin Commissioner Nathan Houdek, who chairs the Financial Condition Committee, noted the asset class has drawn attention as usage extends beyond its original regulatory scope.

The structural boundary is where the two workstreams meet. Delaware Statutory Trusts holding performing mortgages for a single insurer can qualify for both the 0.68% factor and Schedule B reporting. Multi-investor DSTs, where several parties hold interests in the same series, are excluded from look-through and stay on Schedule BA at the vehicle-level factor. Two economically similar mortgage pools can therefore sit three-quarters of a capital charge apart on the basis of who else is in the trust.

That is the constraint on the relief. The 0.68% factor is priced on an assumption of loan-level visibility and continuous delinquency tracking. If holdings keep compounding at the pace seen since 2020, the industry's exposure could approach $200 billion by year-end 2027, and the reporting infrastructure that justifies the factor has to scale with it rather than behind it.

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