At the Spring 2026 National Meeting in Louisville (March 22 to 25), the NAIC's Statutory Accounting Principles Working Group adopted two measures that will reshape how U.S. life insurers manage statutory capital, interest rate risk, and investment strategy. First, SAPWG adopted a proof-of-reinvestment template (Ref #2025-23) that adds a quantitative gate to any insurer whose Interest Maintenance Reserve balance turns or goes further negative. Second, SAPWG exposed a proposed new Statement of Statutory Accounting Principles No. 109 and an accompanying issue paper for asset-liability management derivatives, with public comments closing on May 1, 2026.

Having tracked SAPWG meeting materials since the initial INT 23-01 adoption in August 2023, we can see the gradual tightening of reinvestment proof requirements that led to this Spring's template mandate. The direction is clear: regulators want assurance that bond sales generating realized losses are genuine portfolio-improvement trades, not liquidity-driven dispositions dressed up as repositioning. For actuaries managing the transition, the combined capital impact of tighter IMR rules and new derivative accounting will require careful modeling well before the permanent framework takes effect.

This article walks through both measures, models their combined impact on a representative life insurer's statutory balance sheet, and provides practical guidance for actuaries preparing for the August 2026 Summer National Meeting, where Chairman Dale Bruggeman targets adoption of a permanent IMR framework.

How the Interest Maintenance Reserve Works and Why It Broke

The IMR exists to smooth the impact of interest-rate-driven realized gains and losses on life insurer statutory earnings. Under SSAP No. 7, when a life or accident and health insurer sells a fixed-income asset, the portion of the realized gain or loss attributable to changes in interest rates is captured in the IMR rather than flowing directly through surplus. The captured amount is then amortized into investment income over the approximate remaining life of the investment sold. The result is that a bond sale driven by rate movements does not produce a one-time spike or drop in statutory income.

A positive IMR represents net deferred interest-rate-related gains and appears as a liability on the statutory balance sheet. The system worked well during decades of declining rates, when insurers selling appreciated bonds generated positive IMR balances that amortized smoothly into future-period income.

The Federal Reserve's aggressive tightening cycle starting in March 2022 inverted the mechanism. As the federal funds rate climbed from near zero to over 5% in roughly 18 months, U.S. life insurers faced close to an estimated $700 billion in unrealized losses on fixed-income portfolios. Insurers that chose to sell lower-yielding bonds, even for sound asset-liability management reasons such as extending duration or improving book yield, recorded realized losses that drove their IMR balances negative.

A negative IMR is problematic under statutory accounting because it represents net deferred interest-rate-related losses. Before INT 23-01, a negative disallowed IMR was reported as a miscellaneous other-than-invested write-in asset in the general account and treated as nonadmitted, meaning it reduced surplus dollar for dollar. This created a perverse incentive: an insurer that sold a 2% coupon bond at a loss and reinvested at 5.5% was improving its long-term economic position, but the immediate statutory consequence was a surplus hit that could compress RBC ratios and trigger regulatory scrutiny.

INT 23-01: Three Years of Temporary Relief

SAPWG adopted INT 23-01 on August 13, 2023, creating a temporary exception that allowed qualifying life insurers to admit a portion of their negative IMR balance rather than treating it entirely as nonadmitted. The interpretation included several guardrails designed to limit moral hazard.

Original guardrails (August 2023)

Condition Requirement
RBC threshold Company action level RBC ratio must exceed 300% of authorized control level after all adjustments
Admittance cap Net negative IMR admitted limited to 10% of adjusted general account capital and surplus
Adjustment basis Adjusted surplus excludes net positive goodwill, EDP equipment and operating system software, net deferred tax assets, and the admitted negative IMR itself
Attestation Insurer must attest that sales generating IMR losses are consistent with investment or liability management policies and did not result from liquidity pressures
Disclosure Report admitted amount, adjusted capital calculation supporting the 10% limitation, and negative IMR as a percentage of adjusted capital
Balance sheet treatment Admitted Disallowed IMR recorded as a line 25 asset with a corresponding line 34 capital and surplus entry; excluded from funds available for dividends

Extensions and refinements

The original INT 23-01 was effective immediately and permitted until December 31, 2025, with automatic nullification on January 1, 2026. At the Summer 2025 National Meeting, SAPWG voted to extend the effective date through December 31, 2026, providing the IMR Ad Hoc Subgroup an additional year to develop a permanent framework. The extension also introduced a clarification: the 10% cap applies separately against both adjusted capital and surplus (the original basis with adjustments) and unadjusted capital and surplus, with the insurer required to use the lower of the two calculations. This dual-cap refinement addressed concerns that certain capital structure configurations could allow outsized admittance relative to an insurer's true capital base.

Industry context

S&P Global Market Intelligence reported that the aggregate life insurer IMR balance declined to $8.84 billion as of September 30, 2024, down from $12.20 billion at the end of June 2024, reflecting continued contraction driven by realized losses on fixed-income dispositions. Individual company concentrations remained substantial: Northwestern Mutual Life Insurance Company held the largest negative IMR within its general account among U.S. life insurers at negative $2.15 billion as of September 30, 2024. These numbers underscore why the temporary admittance regime has been material to industry capital adequacy, and why regulators are proceeding carefully with the permanent replacement.

The Spring 2026 Proof-of-Reinvestment Template

The core adoption at the Spring 2026 meeting was the proof-of-reinvestment template, incorporated as revisions to SSAP No. 7 through Ref #2025-23. This template adds a quantitative gate that insurers must clear before they can increase a net negative IMR balance. The template addresses the regulatory concern that some insurers may be selling bonds for reasons unrelated to genuine portfolio improvement.

Two-part test mechanics

The template contains two distinct tests, both of which must be passed for an insurer to recognize additional realized losses in the IMR when the IMR balance is already negative or when the current-period losses would push it negative.

Reinvestment test (volume). The insurer must demonstrate that it is acquiring bonds or loans in sufficient quantities relative to its investable premiums and sold fixed-income investments. This test verifies that sale proceeds are being recycled into the fixed-income portfolio rather than being diverted to other asset classes or distributed. The template captures this comparison using data from the cash flow exhibit, creating a standardized measurement that regulators can review across all reporting entities.

Yield test. The weighted average yield of newly acquired bonds and loans must exceed the weighted average yield of the investments sold. This test directly addresses the portfolio-improvement rationale: if an insurer claims it sold low-coupon bonds to reinvest at higher yields, the acquired portfolio must actually demonstrate higher yields than the disposed portfolio. Selling a 3% bond to buy a 5.25% bond passes. Selling a 3% bond and buying a 2.8% bond does not.

General account versus separate account treatment

The template applies separately to general account and separate account IMR balances. Proof of reinvestment is required only when a specific account's IMR goes net negative or increases an existing negative balance. A positive separate account IMR balance has no impact on the general account calculation, and vice versa. This account-level separation prevents insurers from offsetting poor general account investment performance with separate account gains.

Consequences of failure

If an insurer fails either test, the regulatory consequences are direct. Realized losses from bond sales that would otherwise be deferred through the IMR cannot be deferred. Instead, they become immediate surplus hits. Specifically, if additional realized losses cannot be offset by current-year realized gains, those net losses flow directly to surplus rather than being captured in the IMR for amortization over the remaining life of the sold investment.

For a life insurer with $500 million of additional realized losses on bond sales and a failed proof-of-reinvestment test, the entire $500 million would reduce surplus in the period of the sale rather than being spread over, say, 7 to 10 years of amortization. The RBC ratio impact is immediate and can be substantial, particularly for companies already operating with RBC ratios in the 350% to 450% range that would consider the 300% company action level trigger a meaningful constraint.

Disclosure and filing

The proof-of-reinvestment is designed as a disclosure requirement within SSAP No. 7, completed annually by all affected reporting entities. The NAIC staff will continue working with industry representatives to refine the templates as part of the ongoing IMR project, with the concept and revised disclosure templates to be subsequently exposed and considered for adoption as part of the permanent framework's issue paper and revised SSAP.

SSAP 109: A New Accounting Framework for ALM Derivatives

The second major development from the Spring 2026 meeting was the exposure of proposed SSAP No. 109 and an accompanying issue paper for ALM derivatives. This proposal addresses a longstanding gap in statutory accounting: derivatives used for macro-level asset-liability management that do not qualify as effective hedges under SSAP No. 86 (Derivatives) or SSAP No. 108 (Derivatives Hedging Variable Annuity Guarantees).

The problem SSAP 109 solves

Life insurers routinely use interest rate swaps, swaptions, and other derivatives to manage duration mismatches between assets and liabilities. Under current statutory accounting, if these derivatives do not meet the specific effectiveness criteria of SSAP No. 86 or No. 108, they are marked to fair value with gains and losses flowing directly through surplus. In a volatile interest rate environment, this creates significant surplus volatility that may not reflect the economic reality of the hedge. An insurer may have a well-designed ALM program where derivative losses are offset by gains in the value of liabilities that are not marked to market under statutory accounting, yet the one-sided recognition of derivative fair value changes produces misleading swings in reported surplus.

Key provisions of the proposed standard

Qualifying criteria. To use SSAP 109 treatment, an insurer must demonstrate a clearly defined hedging strategy that uses specified derivatives (or a portfolio of specified derivatives) to hedge the interest rate sensitivity of designated hedged items, including various interest rate sensitive insurance products where duration can be reliably measured. The strategy must meet specified effectiveness criteria tested quarterly.

Amortized cost approach. All designated highly effective hedging instruments under SSAP 109 are initially reported at fair value. However, fair value fluctuations attributable to the hedged risk are recognized as deferred assets and deferred liabilities rather than flowing through surplus immediately. The derivative asset or liability fair value is offset by a deferral account, making the initial recognition surplus-neutral.

Deferral mechanics. Deferred assets and liabilities are recognized only if the derivative terminates while part of a highly effective program, or if it is removed (rebalanced) from a highly effective program. If the program becomes ineffective, all derivative recognition from that point forward is recognized as immediate gains and losses and is not deferred. This effectiveness gate prevents companies from retroactively claiming deferral treatment for poorly designed or deteriorating hedge programs.

Amortization period. Deferred derivative gains and losses are amortized using the straight-line method into net gain from operations over a period equal to the weighted average life of the hedged liability portfolio, but not exceeding 10 years. Amortization for a quarter's derivative fair value change begins in the following quarter. The 10-year cap prevents indefinite deferral and ensures that hedge gains and losses are recognized within a reasonable timeframe relative to the underlying insurance liabilities.

Admitted asset treatment. Net deferred assets representing realized fair value losses from qualifying ALM derivatives may be reported as admitted assets on the statutory balance sheet. Net deferred liabilities representing realized fair value gains are recognized as liabilities. This admitted asset treatment is critical because it means that deferred derivative losses do not reduce surplus the way a nonadmitted asset would.

Enhanced reporting. The proposal contemplates adding separate line items to Schedule DB for ALM derivative identification, along with expanded disclosure requirements for accumulated IMR, deferred derivatives, and what regulators describe as "soft" assets on the statutory balance sheet.

Comment period and timeline

Public comments on SSAP 109 and the accompanying issue paper closed on May 1, 2026. The NAIC staff and SAPWG will review comments and potentially expose revised drafts at interim meetings before the Summer 2026 National Meeting in San Diego (August 2026). The aspiration is for a potential effective date of January 1, 2027, though the complexity of the proposal and the volume of industry feedback may push final adoption into late 2026 or early 2027.

Combined Capital Impact: Modeling the Interaction

The proof-of-reinvestment template and SSAP 109 interact in ways that create both constraints and opportunities for life insurer capital management. To illustrate, consider a representative mid-size life insurer with the following statutory balance sheet characteristics:

Balance Sheet Item Amount
General account admitted assets $25 billion
Statutory surplus (before adjustments) $2.5 billion
Net negative IMR balance ($180 million)
Admitted negative IMR (10% cap) $215 million maximum
RBC ratio (company action level) 410%
Annual fixed-income turnover $3 billion
Interest rate derivative notional $8 billion

Scenario 1: Proof of reinvestment passes, SSAP 109 not yet effective

The insurer sells $1 billion of bonds with a 3.2% weighted average coupon and reinvests in bonds with a 5.1% weighted average yield. Both the volume and yield tests pass. The approximately $120 million of realized losses on the sales are captured in the IMR and amortized over the 8-year weighted average remaining life of the sold bonds, adding roughly $15 million per year to the negative IMR balance but spreading the surplus impact. The insurer continues to admit the negative IMR under INT 23-01 within the 10% cap. Book yield on the reinvested portion improves by approximately 190 basis points, generating roughly $19 million per year of incremental investment income on the $1 billion tranche.

Scenario 2: Proof of reinvestment fails

The insurer sells $1 billion of bonds but reinvests only $600 million in fixed-income assets, diverting $400 million to fund a private equity allocation. The volume test fails. The $120 million of realized losses cannot be deferred through the IMR and instead reduce surplus immediately. The surplus impact: $2.5 billion becomes $2.38 billion, compressing the RBC ratio by approximately 20 to 25 points depending on required capital levels. For an insurer already at 410% RBC, this moves the ratio to roughly 385% to 390%, still above the 300% company action level but within a range that some rating agencies would flag as trending in the wrong direction.

Scenario 3: SSAP 109 takes effect alongside the permanent IMR framework

Under SSAP 109, the insurer's $8 billion interest rate derivative notional generates, say, $200 million of unrealized fair value losses in a quarter when rates rise 50 basis points. Under current accounting, those losses flow directly through surplus. Under SSAP 109, assuming the ALM program qualifies as highly effective, the $200 million is captured in a deferred liability account and amortized over the weighted average life of the hedged liabilities (capped at 10 years). The immediate surplus impact changes from a $200 million hit to a $5 million per quarter amortization charge (using 10-year straight-line). The insurer's reported surplus stabilizes, and the RBC ratio no longer swings 30 to 40 points in a single quarter due to derivative mark-to-market movements.

The interaction effect

When both frameworks are in place, an insurer has two channels for smoothing interest-rate-driven capital volatility. Realized losses from bond sales can be deferred through the IMR (if the proof-of-reinvestment template is satisfied), and unrealized losses from qualifying ALM derivatives can be deferred through SSAP 109's amortized cost mechanism. The combined effect significantly reduces the probability of a single-quarter RBC ratio compression event driven purely by interest rate movements.

However, the combination also creates a larger stock of deferred losses on the balance sheet. Regulators are aware of this accumulation risk, which is why the expanded disclosure requirements under SSAP 109 explicitly reference "soft" assets and why SAPWG has discussed adding a disclosure schedule that aggregates all deferred interest-rate-related items (IMR balance, deferred derivative gains and losses, and any other amortizing interest-rate items) in a single exhibit. Actuaries should expect this aggregated disclosure to become a focus of regulatory examination and rating agency analysis once both frameworks are live.

Timeline to the Permanent Framework

The path from the current temporary INT 23-01 regime to a permanent IMR framework involves several milestones that actuaries should track:

Date Milestone
March 22-25, 2026 Spring National Meeting: SAPWG adopts proof-of-reinvestment template; exposes SSAP 109
May 1, 2026 Comment period closes for SSAP 109 and ALM derivatives issue paper
April-May 2026 IMR Ad Hoc Subgroup expected to present proposed long-term framework at an interim SAPWG meeting
May-July 2026 Exposure of comprehensive SSAP No. 7 overhaul and accompanying issue paper for permanent IMR treatment
August 2026 Summer National Meeting (San Diego): Target for adoption of permanent IMR framework and potentially finalized SSAP 109
December 31, 2026 INT 23-01 expires; if permanent framework not adopted, negative IMR admittance reverts to zero
January 1, 2027 Aspirational effective date for SSAP 109

The critical risk scenario is a failure to adopt the permanent framework by year-end 2026. If INT 23-01 expires without a replacement, every dollar of admitted negative IMR currently sitting on life insurer balance sheets reverts to nonadmitted status on January 1, 2027. For the industry, that could mean billions of dollars of immediate surplus reduction. For individual insurers with large negative IMR balances, the RBC ratio impact could be severe enough to trigger company action level events.

This cliff risk is why Chairman Bruggeman has set an August 2026 adoption target. The Working Group recognizes that the industry needs certainty well before December 31 to plan year-end financial statements, dividend declarations, and reinsurance transactions.

Reinsurance Complications

One area that remains under active discussion is how IMR interacts with reinsurance treaties. SAPWG is evaluating whether IMR should be reflected symmetrically regardless of whether the balance is positive or negative, which would affect both ceding companies and assuming reinsurers. Key questions include how modified coinsurance (ModCo) and funds-withheld arrangements should reflect IMR in the settlement calculations, and whether a negative IMR at the ceding company level should be allocated to the reinsurer in proportion to the ceded reserves.

This is directly relevant to the wave of asset-intensive reinsurance transactions flowing to Bermuda and other offshore jurisdictions. The Spring 2026 meeting also exposed proposals on restricted asset reporting for ModCo and funds-withheld arrangements, along with enhanced disclosures for funding agreement-backed financing programs. Actuaries working on AG 55 filings for offshore reinsurance should monitor these IMR-reinsurance interactions closely, as the treatment of negative IMR in ceded business could affect both the ceding company's statutory position and the required reserves in the reinsurer's financial statements.

Practical Guidance for Life Actuaries

Based on the Spring 2026 developments and the forward timeline, actuaries in valuation, financial reporting, and investment roles should take several steps before the August Summer National Meeting.

1. Model the proof-of-reinvestment template against your company's investment activity

Pull the cash flow exhibit data for the most recent annual statement and run both the yield test and the reinvestment (volume) test retrospectively. Determine whether your company would have passed under the new template. If the answer is no, identify which test failed and by what margin. This exercise gives the CFO and CIO a concrete picture of how the new rules would constrain future portfolio repositioning decisions.

2. Quantify the SSAP 109 impact on derivative accounting

If your company uses interest rate derivatives for ALM purposes that do not currently qualify under SSAP No. 86, estimate the notional and fair value of the affected derivative portfolio. Model the surplus volatility reduction that SSAP 109 treatment would provide under several interest rate scenarios (parallel shift up 100 bps, down 100 bps, steepener, flattener). This analysis should inform your company's comment letter on SSAP 109 if one has been submitted, and will be essential for year-end 2026 planning if the standard is adopted.

3. Stress-test the INT 23-01 expiration scenario

Model what happens to your company's RBC ratio if INT 23-01 expires without a replacement on January 1, 2027. Calculate the admitted negative IMR currently on your balance sheet, assume it reverts to fully nonadmitted, and compute the pro forma surplus and RBC ratio. If the result would trigger a company action level event or a rating agency downgrade, develop a contingency plan that might include accelerating portfolio repositioning to reduce the negative IMR balance before year-end.

4. Coordinate across actuarial, investment, and accounting functions

The IMR framework and SSAP 109 cut across traditional organizational boundaries. Valuation actuaries need to understand the derivative accounting changes. Investment professionals need to understand the proof-of-reinvestment constraints on portfolio rebalancing. Financial reporting teams need to prepare for new disclosure requirements. Start cross-functional working sessions now rather than waiting for the final standards.

5. Track the SSAP No. 7 overhaul exposure

The comprehensive overhaul of SSAP No. 7 and its accompanying issue paper is expected to be exposed for comment between the Spring and Summer National Meetings. This document will contain the permanent framework's detailed requirements, including any changes to the proof-of-reinvestment template, the admittance cap level, and the conditions for continued negative IMR admission. Actuaries should prioritize reviewing this exposure when it becomes available and consider submitting comments through the Academy of Actuaries or directly to SAPWG.

The Broader Statutory Capital Picture

The negative IMR and SSAP 109 developments do not exist in isolation. Several parallel NAIC initiatives will affect life insurer capital in 2026 and 2027:

  • GOES economic scenario generator. The new Generator of Economic Scenarios framework, replacing the current AIRG, is heading toward a Summer 2026 C-3 field test with year-end 2027 adoption in view. Changes to the stochastic scenario set could shift C-3 capital requirements for variable annuity and fixed indexed annuity blocks. For context, see our analysis of the NAIC C-3 field test and GOES generator.
  • C-2 longevity risk charge. The NAIC Longevity Risk Subgroup and Academy of Actuaries are developing a C-2 RBC charge that separates retained and ceded longevity exposure, targeting a year-end 2027 effective date. Our C-2 longevity risk framework analysis covers the proposed stress scenarios and modeled capital impact.
  • CLO RBC factors. The Investment RBC Working Group continues to develop risk-based capital charges for collateralized loan obligation tranches, with a 2026 adoption target. The proposed methodology uses a 4% tranche thickness divide and would increase capital charges for below-investment-grade tranches.
  • LDTI earnings volatility. GAAP reporting under ASU 2018-12 continues to create tension with statutory results, as LDTI year three earnings patterns demonstrate. The mismatch between GAAP and statutory treatment of interest rate movements is another reason actuaries need to understand both the IMR framework and SSAP 109.

Taken together, these initiatives represent the most significant overhaul of life insurer capital requirements since the risk-based capital system was introduced in the 1990s. The IMR and derivative accounting changes address the interest rate dimension; GOES addresses the stochastic scenario dimension; the longevity charge addresses the mortality and longevity dimension; and CLO factors address the credit dimension. Life insurer CFOs and chief actuaries will need to model the combined impact of all four initiatives to understand their company's post-2027 capital position.

Why This Matters for Actuaries

The Spring 2026 SAPWG actions move the life insurance industry from a temporary, crisis-response IMR regime to a structured, permanent framework with quantitative compliance tests. The proof-of-reinvestment template transforms negative IMR from a blanket admittance question into a test of whether realized losses represent genuine portfolio improvement. SSAP 109, if adopted as proposed, gives life insurers a new tool for reducing surplus volatility from ALM derivatives while maintaining regulatory oversight through effectiveness testing and amortization caps.

For practicing actuaries, the implications span several areas of daily work. Valuation actuaries performing asset adequacy testing need to incorporate the new IMR treatment into cash flow projections. Pricing actuaries setting investment income assumptions for new business need to understand how the proof-of-reinvestment test may constrain the investment department's ability to reposition the portfolio. Risk actuaries stress-testing capital under various interest rate scenarios need to model both the IMR and SSAP 109 channels of deferral. And actuaries working on life insurance strategic planning need to factor the year-end 2026 cliff risk into their capital management recommendations.

The August 2026 Summer National Meeting in San Diego will be decisive. Between now and then, the SSAP No. 7 overhaul, SSAP 109 revisions based on comment letters, and the permanent framework proposal will all need to clear SAPWG exposure and adoption votes. Actuaries who have modeled the scenarios outlined in this article will be prepared regardless of whether the permanent framework arrives on schedule or whether INT 23-01 requires yet another extension.

Further Reading

Sources