MBA Addresses Life Insurance 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 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.   


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 assets and 23 percent for joint venture assets. MBA is recommending that the RBC charge for both categories to 10 percent.

NAIC expects to place this issue on the committee docket for discussion and consideration in 2017. When NAIC releases a formal proposal, MBA will work with members to review and comment on changes to the risk based capital rule for life company holdings of 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, and will continue to engage with the NAIC at all levels.  

April 2017

Related Issues

Get Loud with the Mortgage Action Alliance

MAA is MBA's voluntary, non-partisan and free nationwide grassroots lobbying network of real estate finance industry professionals. Participation is simple and FREE. Learn more.