MBA Addresses Life Insurance Company Risk-Based Capital Requirements



After a concerted five-year effort, the National Association of Insurance Commissioners (NAIC), in 2013, adopted the replacement for the problematic Mortgage Experience Adjustment Factor (MEAF) RBC formulation for life company commercial and multifamily mortgage holdings.  MBA continues to provide implementation oversight and feedback, as well as strengthen support of this important regulatory capital regime. 

The MBA-supported framework applies RBC to each loan in a life company's commercial and multifamily real estate loan portfolio based upon the loan's debt service coverage ratio (DSCR) and loan to value ratio (LTVR). The proposal has seven RBC categories, five for performing loans, a category for loans past due and a category for loans in default. For the five categories of performing loans, the RBC charges are based upon which category in a grid (CM1-CM5) that it falls within based upon the combination of the loan's LTVR and DSCR.  The new RBC framework is as shown below:  

In 2016, the NAIC will perform a review of the MEAF replacement. MBA is working with the NAIC to develop the framework for this review and will be providing supporting data and commentary to support the current risk-based capital regime.


MBA is participating in the NAIC's RBC review effort for life company commercial and multifamily real estate equity holdings (equity holdings).  MBA has teamed with the American Council of Life Insurers (ACLI) on this project.  The C-1 Factor requires a 15 percent RBC for properties that are wholly owned by a life company and 23 percent for properties that are owned in a partnership structure (Schedule BA properties).  Life company members have expressed concern that these high levels of RBC are punitive and have dissuaded them from increasing their real estate equity holdings. The NAIC structure assigned with this effort is the C-1 Factor Review (E) Joint Subgroup of the Capital Adequacy and Valuation of Securities (E) Task Forces (Joint Subgroup).  The C-1 Factor represents asset risk and is associated with RBC.  The Joint Subgroup is charged with examining the C-1 Factors for corporate bonds, common stock, mortgages, owned real estate, other invested assets, and derivatives. In December 2013, a C-1 Factor proposal was made available.  During 2014 and 2015, MBA and ACLI worked together to address issues and concerns with the proposal that were raised by the NAIC and the American Academy of Actuaries. In February 2016, the proposal was modified to address these concerns.  Final implementation for the proposal may be paired with RBC modifications to unrelated asset categories.  MBA recommends that the NAIC approve and implement the proposed RBC changes to equity real estate independently from changes to other asset classes. 


MBA has been actively engaging NAIC leadership and staff on a variety of issues. At MBA's June 2014 Life Insurance Senior Executive Roundtable, NAIC's Chief Executive Officer, Senator Ben Nelson, provided his perspective on changes to the MEAF. In addition, MBA has actively engaged NAIC securities, regulatory, and lobbying staff on a range of issues including TRIA, life company risk-based capital and natural catastrophe insurance. MBA will continue to increase its engagement with NAIC staff at every level.


MBA has taken a comprehensive, multi-pronged approach for addressing risk-based capital (RBC) reform for life insurance company (life company) members that addresses commercial and multifamily real estate mortgages, equity real estate, and commercial mortgage-backed securities (CMBS). 

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, as well continue to engage with the NAIC at all levels. 

April 2016

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