From reviewing NAIC meeting minutes across six consecutive meetings, the pattern of ad hoc factor proposals (wildfire at one session, cyber at another, CLOs at a third) without a unifying methodology made it clear why a systematic framework is overdue. The Risk-Based Capital Model Governance Task Force, co-chaired by Wisconsin Commissioner Nathan Houdek and Ohio Director Judith French, represents the first attempt to govern how the RBC formula is governed. This is meta-regulation in its purest form: creating rules about how rules get made.

The timing is not coincidental. Between 2024 and 2026, the NAIC received or generated proposals to add wildfire catastrophe charges to P&C RBC, recalibrate CLO asset risk factors across 20 NAIC designation categories, revise collateral loan charges from a flat 6.8% to a look-through framework, and eliminate the investment subsidiary category entirely. Each proposal followed its own process, its own comment timeline, and its own calibration methodology. The inconsistency was becoming untenable, and the RBC Model Governance Task Force exists to ensure the next wave of factor proposals follows a unified, transparent path from identification to adoption.

Why the Current Ad Hoc Approach Broke Down

The RBC formula was introduced in 1993 as a regulatory early-warning system for insurer solvency. For three decades, individual risk factors were added or recalibrated through a process that was functional but never formalized. A working group would identify a gap, an interested party would submit a proposal, the relevant Capital Adequacy subgroup would discuss it, and eventually the Financial Condition Committee would adopt or reject it.

This worked when the cadence of change was slow. But the acceleration of new risk types and asset classes in the 2020s exposed structural weaknesses in the approach:

Inconsistent calibration standards. The wildfire catastrophe factor adopted at the Spring 2026 meeting uses vendor model outputs (RMS, Verisk, KCC-CoreLogic) evaluated under ASOP No. 38. The CLO factor proposal uses CTE(90) analysis performed by the American Academy of Actuaries on the entire universe of broadly syndicated loan CLOs held by U.S. insurers. The collateral loan proposal uses a loan-to-value framework with generic haircuts. These three concurrent proposals employ fundamentally different statistical foundations, different confidence intervals, and different data sources. Without a governing framework, there is no mechanism to ask whether a 1-in-100 return period for wildfire risk is equivalent in conservatism to a CTE(90) threshold for credit risk.

Timing mismatches across entity types. The CLO factor work primarily affects life insurers, where CLO allocations concentrate in PE-backed retirement services platforms. The wildfire factor primarily affects P&C writers with California and western U.S. exposure. The collateral loan revision affects life companies reporting Schedule BA assets. Each proposal progresses on its own timeline: wildfire was adopted at the Spring 2026 meeting, CLOs target a December 31, 2026 effective date, and collateral loans face pushback for implementation no earlier than year-end 2027. No coordinating mechanism existed to assess whether these overlapping capital impacts create unintended cumulative effects for multiline groups.

Process before policy. As the Sidley Austin regulatory update noted from the Spring 2026 discussion, regulators observed that "technical work sometimes proceeds before agreement on underlying policy objectives, creating inefficiencies." A working group might spend 18 months calibrating a factor only to discover at the Committee level that the underlying policy question (should this risk even be in RBC?) was never formally resolved.

The Nine Principles: A Governing Constitution for Capital Adequacy

The Task Force adopted nine principles at the Fall 2025 National Meeting in December. These principles serve as what the NAIC describes as a "guiding North Star" for governing the purpose, maintenance, and prioritization of RBC requirements. They apply to both prospective changes (new factors) and retrospective assessments (existing factors that may need recalibration or removal).

Principle Core Requirement Practical Implication
1. Materiality Updates should occur only when changes meaningfully impact solvency risk assessment Blocks low-impact proposals from consuming regulatory bandwidth; establishes a threshold test before technical work begins
2. Equal Capital for Equal Risk Requirements must maintain consistent statistical safety levels and time horizons across risk types Forces cross-formula calibration consistency; a 1-in-X year event in P&C catastrophe risk should map to equivalent confidence in life credit risk
3. Objectivity Account for concentration, diversification, and tail risks without promoting unrelated regulatory actions Prevents RBC from becoming a vehicle for policy goals unrelated to solvency (e.g., ESG investment incentives or punitive charges on disfavored asset classes)
4. Accuracy Precision in assessing solvency risk while avoiding unnecessary complexity Establishes a proportionality test: the marginal precision gain from complexity must justify the implementation burden on companies and regulators
5. Grounded in Statutory Accounting Changes must be derived from data available in statutory annual statements Prevents proposals that require off-balance-sheet data collection, ensuring factors can be calculated from Schedule D, BA, and other standard exhibits
6. Emerging Risks Incorporate new macroprudential risks when material to industry segments Provides the entry point for cyber, climate, AI operational risk, and other novel risk categories; requires materiality demonstration before calibration work begins
7. Transparency Adherence to NAIC open meeting policies with clear documentation Requires public exposure, comment periods, and documented rationale for every factor change; blocks closed-door calibration decisions
8. Process Data-driven methodologies with model validation and expert judgment where needed Establishes minimum analytical standards for supporting a factor proposal; generic assertions of risk without quantitative support would fail this test
9. Prioritization Use regulatory judgment considering necessity, materiality, and resource intensity Allows the NAIC to sequence proposals rather than running all in parallel; acknowledges finite staff capacity for concurrent complex projects

The "Equal Capital for Equal Risk" principle deserves particular attention. It implies that a dollar of expected loss from a CLO tranche default should attract the same capital charge as a dollar of expected loss from a wildfire catastrophe, adjusted for frequency and severity characteristics. Achieving this in practice requires a common calibration standard, something the RBC formula has never had. The life RBC formula uses C-1 through C-4 components with distinct methodologies; the P&C formula uses Rcat, R1 through R5, and operational risk; the health formula has H0 through H4. Aligning confidence intervals across these architecturally different structures is the central technical challenge the Task Force must eventually address.

The Process Flowchart: How New Factors Enter the Formula

At the Spring 2026 National Meeting on March 24, the Task Force reviewed a draft flowchart describing how potential RBC changes would be identified, evaluated, and referred within the NAIC structure. While not yet formally adopted, the flowchart represents the first attempt to codify the adjustment process into discrete, sequenced stages.

Based on the Spring 2026 discussion documented by Sidley Austin and KPMG, the proposed process distinguishes between policy questions and technical questions at each stage:

Stage 1: Identification. A risk gap is identified through the gap analysis, a stakeholder proposal, a market event, or an emerging risk assessment. The Task Force evaluates whether the risk meets the materiality threshold (Principle 1) and whether it is appropriate for RBC treatment versus other regulatory tools (supervisory guidance, own-risk and solvency assessment requirements, or qualitative standards).

Stage 2: Policy scoping. Before any technical calibration begins, the relevant Committee determines the policy parameters: which entity types are affected, what the desired confidence level should be, whether the charge should be factor-based or model-based, and what data sources are acceptable. This addresses the efficiency concern raised at the Spring 2026 meeting, where regulators noted that jumping directly to calibration before resolving policy questions wasted working group time.

Stage 3: Technical development. The appropriate working group (Life RBC, P&C RBC, Health RBC, or the cross-entity RBC Investment Risk and Evaluation group) conducts calibration analysis. The Academy of Actuaries or external consultants may be engaged for modeling. Results are exposed for public comment.

Stage 4: Cross-formula consistency check. The Task Force reviews whether the proposed factor is consistent with the nine principles, particularly "Equal Capital for Equal Risk." If a life RBC factor is being calibrated at CTE(90) while a comparable P&C factor uses a 1-in-100 annual exceedance probability, the Task Force can require reconciliation or documentation of why different standards are appropriate.

Stage 5: Adoption and implementation. The Financial Condition Committee adopts the factor, sets an effective date, and establishes any transition periods. The Task Force monitors outcomes through periodic retrospective reviews.

The comment period for the RBC Preamble (which codifies this process) closes June 8, 2026. A joint call between the Task Force and the Capital Adequacy Task Force is scheduled for June 18, 2026, to discuss integration.

The Gap Analysis: What February 2026 Comments Revealed

In February 2026, the Task Force exposed a memorandum seeking input on whether material risks are inadequately captured in the RBC formula and whether inconsistencies across life, P&C, and health formulas impair solvency risk assessment. A Bridgeway Analytics-led analysis surfaced potential issues ranging from asset-specific calibration differences to broader structural gaps.

Key themes from the comment letters:

Investment risk treatment varies significantly across formulas. Life RBC uses 20 designation categories for bonds (NAIC 1 through 20) with factors derived from historical default and recovery data. P&C RBC uses a simpler structure. Health RBC applies yet another approach. For an insurer holding identical bond portfolios across life and health subsidiaries, the capital requirements can differ materially. The gap analysis asks whether these differences are justified by the underlying business models or whether they represent historical accidents that should be harmonized.

Calibration vintage varies widely. Some RBC factors reflect data from the 1990s; others were recalibrated as recently as 2024 (the C-1 bond factor update). The formula contains components where the statistical basis is over 25 years old alongside components using current market data. The gap analysis framework would establish expectations for how frequently factors should be reviewed, even if no specific proposal triggers recalibration.

Commenters cautioned against forced harmonization. Industry stakeholders emphasized that differences across life, P&C, and health formulas are often intentional. A life insurer's 30-year bond portfolio faces different risk dynamics than a P&C company's three-year duration portfolio, even if both hold the same NAIC 2-rated bonds. Several commenters recommended prioritizing changes based on material solvency effects rather than pursuing theoretical consistency for its own sake.

The emerging risk pipeline is growing faster than the formula can absorb. Commenters identified cyber risk, AI operational risk, climate transition risk, and concentration risk in private credit as candidates for future RBC treatment. Without a governance framework, each would follow its own ad hoc path, potentially creating the same inconsistency problems the Task Force was formed to address.

How the Framework Governs Recent and Pending Factor Proposals

The value of a systematic framework becomes clearest when applied to the concurrent factor proposals moving through the NAIC system in 2026:

Wildfire Catastrophe Factor (Adopted, Spring 2026)

The Financial Condition Committee adopted enhancements to the P&C RBC formula incorporating wildfire peril into the Rcat component. Three vendor models (RMS, Verisk, KCC-CoreLogic) were evaluated per ASOP No. 38, finding increasing model consistency. The PR027 instructions specify approved vendor and own-model permissions, data requirements at selected return periods, and contingent credit risk treatment.

Under the new framework's principles, the wildfire addition satisfies materiality (growing frequency and intensity of wildfires), is grounded in statutory accounting (Schedule P and catastrophe model outputs already reported), and follows a transparent process (ASOP No. 38 evaluation, public comment). However, because this proposal was developed before the framework was formalized, it did not pass through the cross-formula consistency check. The Task Force would need to address whether the Rcat aggregation method (square root of the sum of squares across earthquake, hurricane, and wildfire) implies a confidence level comparable to what life RBC uses for analogous tail risks.

Impact assessment using 2024 and 2025 data showed minimal shifts in company action levels. Only two companies exhibited a decline in their RBC action level using 2024 data; 2025 data showed no shifts. This suggests the wildfire factor is primarily an information capture mechanism at current calibration levels, with the real capital impact depending on how the factor evolves as wildfire models mature.

CLO Asset Risk Factors (Targeting December 31, 2026)

The American Academy of Actuaries presented proposed C-1 factors for CLO tranches at the March 2, 2026 RBC Investment Risk and Evaluation Working Group meeting. The Academy analyzed the entire universe of broadly syndicated loan (BSL) CLOs held by U.S. insurers, using ratings as the primary tail risk driver with tranche thickness providing additional differentiation for BBB-rated and lower tranches.

Key features of the proposal:

The timeline is aggressive: comment period through April 16, proposed factor exposure by April 30, adoption by June 15, effective December 31, 2026. Under the new governance framework, this proposal would need to demonstrate "Equal Capital for Equal Risk" relative to other credit instruments. If a BBB-rated CLO tranche and a BBB-rated corporate bond face different expected losses, the differential factor must be justified by documented structural risk differences, not merely by the asset class label.

Collateral Loan RBC Revision (Targeting Year-End 2027)

The Life RBC Working Group exposed a proposal to replace the uniform 6.8% RBC charge for Schedule BA collateral loans with a framework calibrated to loan-to-value ratios, collateral type, and structural protections. The ACLI proposed an overcollateralization framework; the working group discussed Proposal 2025-16-L MOD, which rejects a full look-through approach for collateral loans backed by joint ventures, partnerships, and limited liability companies.

Industry and regulator positions diverge on timing: commissioners support refining collateral loan RBC but contend a year-end 2026 effective date is premature. They urge calibration to structural features, proportionality to exposure, and implementation no earlier than year-end 2027. Under the governance framework's prioritization principle, the Task Force could sequence this proposal behind the CLO work to avoid overwhelming both regulatory staff and industry resources.

Investment Subsidiary Category Elimination (Comment Period Closed April 2026)

The Capital Adequacy Task Force's April 2026 exposure proposes deleting the investment subsidiary category from RBC blanks, instructions, and formulas across life (LR025 to LR033), P&C (PR006), and health (XR007). This proposal is structurally different from the others because it removes a category rather than adding or recalibrating one. Under the framework, it must still satisfy the materiality principle (does the current treatment create a material solvency assessment gap?) and the statutory accounting principle (can the affected exposures be adequately captured through other reporting lines?).

Implications Across Entity Types

The RBC formula is not one formula. It is three distinct frameworks (life, P&C, health) with limited cross-pollination, maintained by separate working groups that historically operated in relative isolation. The Model Governance Task Force is the first body charged with looking across all three simultaneously.

Life RBC: The Most Active Frontier

Life insurers face the densest queue of pending changes. CLO factor recalibration, collateral loan revision, investment subsidiary elimination, and the broader C-1 factor modernization (completed in 2024 for bonds) create overlapping capital impacts. For PE-backed life insurers with concentrated alternative asset portfolios, the cumulative effect of these changes could be material. The governance framework's prioritization principle allows the Task Force to sequence these proposals, but it cannot reduce the aggregate capital impact if each proposal independently satisfies the materiality and accuracy principles.

The C-3 field test using economic scenario generators, currently progressing through the Life Actuarial Task Force, adds another dimension. Interest rate risk charges are being recalibrated using modern generator technology at the same time that asset risk charges are being updated. The framework's cross-formula consistency check would need to assess whether the combined effect of C-1 and C-3 changes produces reasonable total capital requirements, not just reasonable individual components.

P&C RBC: Catastrophe Risk Expansion

P&C RBC has historically been simpler than life RBC, with the Rcat component handling catastrophe risk through vendor model outputs. Adding wildfire extends this model-based approach. The governance framework must address how future perils (convective storms, currently shown informationally but not charged) enter the formula. Convective storms were the costliest insured peril globally in 2023, yet they remain outside the Rcat charge. The emerging risks principle (Principle 6) provides the entry mechanism, but the materiality principle (Principle 1) requires demonstration that including convective storms would meaningfully change action levels. Given the results of the wildfire addition (minimal action level impact), convective storms may face a high bar for inclusion.

Health RBC: Structural Simplicity Under Pressure

Health RBC has the simplest asset risk framework of the three formula types, reflecting the shorter duration and lower investment complexity of health insurance liabilities. However, as health insurers expand into provider-sponsored plan arrangements, value-based care investments, and technology platform acquisitions, the gap between health RBC's asset risk treatment and the complexity of health insurer balance sheets may widen. The gap analysis is the first formal mechanism to assess whether health RBC's simplicity remains appropriate or whether targeted enhancements are needed.

The Academy's Expanding Modeling Role

The American Academy of Actuaries has become the de facto modeling arm for complex RBC factor proposals. Its CLO modeling work, which analyzed the entire universe of BSL CLOs held by U.S. insurers and produced tranche-level risk factors, sets a quantitative rigor standard that future factor proposals will be expected to match.

This creates an implicit expectation: if a stakeholder proposes adding cyber operational risk to RBC, or including climate transition scenarios in asset risk charges, the Academy (or an equivalent body) would need to conduct population-level analysis with transparent methodology, public exposure, and comment periods. The days of adopting a factor based on a single company's internal model or a rough industry survey are effectively over.

The Academy's "comparable attributes" approach for CLOs, where tranche-level characteristics rather than a simple ratings lookup determine the charge, also signals a methodological direction. Future factor proposals may need to demonstrate granularity: not just "what is the charge for this asset class" but "how does the charge vary based on structural features within the asset class." The governance framework's accuracy principle supports this direction, while the grounded-in-statutory-accounting principle constrains it (you can only differentiate based on reported data).

What This Means for Practicing Actuaries

The governance framework changes how actuaries interact with the RBC system at multiple levels:

For appointed actuaries and chief actuaries. The gap analysis and subsequent referrals will generate new working group activity over 2026 and 2027. Actuaries who participate in NAIC advisory groups should expect requests for data, modeling support, and comment letters. The June 8, 2026 comment deadline for the RBC Preamble is the immediate action item; the June 18 joint call with the Capital Adequacy Task Force will signal which gap analysis findings are prioritized for technical work.

For capital management teams. The framework creates greater predictability about what changes are coming and when. The staged process (identification, policy scoping, technical development, consistency check, adoption) means that factor proposals will have longer lead times but also more transparent timelines. Companies can begin impact assessment earlier in the process rather than responding to surprises at the adoption stage.

For ERM and ORSA practitioners. The gap analysis findings will signal which risks the NAIC believes are inadequately captured in RBC. Even before formal factor proposals emerge, companies may face examiner questions about whether their ORSA addresses risks identified in the gap analysis. The principle of emerging risks (Principle 6) requires incorporating macroprudential risks "before they materialize," which implies that companies should be analyzing cyber, climate, and AI operational risk in their own risk assessments regardless of whether formal RBC charges exist.

For actuaries at PE-backed life insurers. The cumulative queue of life RBC changes (CLOs, collateral loans, investment subsidiary elimination, C-3 field test) represents the most concentrated capital reform activity since the formula's inception. The governance framework's prioritization principle may provide sequencing relief, but each proposal will ultimately be evaluated independently. Internal capital models should be stress-tested against the full stack of pending changes simultaneously, not just individually.

The Global Context: ICS Comparability and Competitive Positioning

The governance framework also serves a diplomatic purpose. Commissioner Houdek stated that the Task Force would "reinforce global competitiveness" of the U.S. solvency system. This references the ongoing IAIS Insurance Capital Standard (ICS) implementation and the Aggregation Method (AM) comparability assessment, where the NAIC must demonstrate that state-based RBC produces comparable solvency outcomes to the ICS for internationally active insurance groups.

A systematic, principle-based governance framework strengthens the U.S. position in comparability discussions. It demonstrates that RBC is not merely a legacy formula resistant to change, but an actively maintained system with clear standards for evolution. The "Equal Capital for Equal Risk" principle directly echoes language from the ICS framework, signaling alignment in philosophy even where methodological details differ.

The IAIS opened its 2026 baseline self-assessment across 18 jurisdictions and 59 IAIGs. As that assessment progresses, the RBC governance framework provides evidence that the U.S. system can adapt to emerging risks and maintain calibration rigor, key criteria for Aggregation Method comparability. The Excess Relative Ratio approach, already adopted for AM calibration at 200% of the NAIC RBC Authorized Control Level, presupposes that the underlying RBC factors are appropriately calibrated. The governance framework is the mechanism that ensures they remain so.

Timeline and Next Steps

Date Action Significance
December 2025 Nine principles adopted at Fall National Meeting Establishes the constitutional foundation for future factor governance
February 2026 Gap analysis memorandum exposed for comment First systematic cross-formula inventory of potential inconsistencies
March 24, 2026 Spring National Meeting: process flowchart reviewed, stakeholder comments discussed Draft adjustment process moves from concept to documented workflow
April 23, 2026 RBC Preamble exposed (clean and track-changes versions) Formal codification of governance principles and process in RBC instructions
June 8, 2026 Comment deadline for RBC Preamble Final industry input before potential adoption
June 18, 2026 Joint call with Capital Adequacy Task Force Integration discussion: how governance framework interfaces with existing working group processes
Summer 2026 Expected: gap analysis referrals to technical working groups Determines which identified inconsistencies receive priority for remediation
Fall 2026 Expected: framework adoption and initial retrospective reviews Full operationalization of the governance process

Why This Matters

The RBC formula determines minimum capital requirements for every licensed insurer in the United States. When it changes, billions of dollars in required surplus shift. The governance framework does not change the formula itself; it changes how the formula changes. That distinction is significant because it creates institutional memory, procedural consistency, and transparent decision criteria for an activity that previously relied on informal conventions and the institutional knowledge of long-serving regulators.

For the actuarial profession, the framework elevates the role of quantitative analysis in the factor development process. The Academy's CLO modeling work establishes a standard where population-level data analysis, transparent methodology, and public comment are prerequisites, not optional enhancements. Every future factor proposal will be measured against that standard.

The queue of pending proposals (wildfire, CLO, collateral loans, investment subsidiary elimination, C-3 modernization, potential cyber and climate additions) represents the highest volume of simultaneous RBC changes since the formula's creation. A governance framework that sequences, prioritizes, and ensures cross-formula consistency is not a bureaucratic luxury. It is a structural necessity for maintaining the integrity of the U.S. solvency system at a moment when the pace of financial innovation and risk evolution exceeds the formula's historical rate of adaptation.

Further Reading

Sources