Life Company Risk-Based Capital Requirements


Life insurance companies are subject to regulation by state insurance regulators. That regulatory framework includes Risk-Based Capital (RBC) standards. RBC standards specify the minimum amount of capital a life company must hold on its balance sheet for various categories of business activities.

State insurance regulators' RBC standards generally are identical to model standards established by the National Association of Insurance Commissioners (NAIC). Therefore, MBA actively works with the NAIC and its various working groups to foster risk-based capital rules that appropriately enable life companies to continue to be a steadfast source of capital for commercial real estate.


In 2013, after a concerted five-year effort, NAIC adopted the replacement for the Mortgage Experience Adjustment Factor (MEAF) Risk-Based Capital (RBC) approach that had previously applied. The new framework specifies RBC requirements for each loan in a life company's commercial and multifamily real estate loan portfolio, based upon (1) the loan's debt service coverage ratio (DSCR) and (2) its loan to value ratio (LTVR). As shown in the table below, the framework has seven RBC categories: five for performing loans, one for loans past due, and one for loans in default. 


Description RBC
CM1 Performing 0.90%
CM2 Performing 1.75%
CM3 Performing 3.00%
CM4 Performing 5.00%
CM5 Performing 7.50%
CM6 Loans 90 days past due but not in foreclosure 18.00%
CM7 Loans in process of foreclosure 23.00%


MBA also actively supported technical changes by the Statutory Accounting Principles (E) Working Group to SSAP 37 to clarify that mortgage participations should be reported as mortgages, not securities, for purposes of calculating risk-based capital requirements. Those changes were adopted consistent with MBA recommendations in June 2017. 


MBA recommends that NAIC reduce the risk-based capital C-1 factors for equity investments in real estate. To that end, MBA is working with the NAIC to secure a reduction for the RBC charge for life company holdings of equity real estate, which currently is 15 percent for wholly owned real estate assets and 23 percent for LLC, joint venture or equity fund real estate assets, advocating that the RBC charge for both categories to 10 percent. Those changes, along with two other related changes, were exposed by the Investment RBC Working Group at NAIC's Spring National Meeting in April 2017 and the Working Group continues to consider the proposal in 2018. We will continue to monitor and engage as necessary as the proposal moves forward through NAIC processes.

MBA also recommends that NAIC continue to apply the risk-based capital treatment of mortgages adopted in 2013. MBA will continue to work with its life company members to create a favorable RBC climate for them to invest in commercial and multifamily real estate mortgages, equity real estate, and CMBS, and will continue to engage with the NAIC at all levels.

May 2018

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