National Association of Insurance Commissioners Adopts MBA/ACLI Proposals
A National Association of Insurance Commissioners working group adopted risk-based capital guidance and reporting instructions to implement the Mortgage Bankers Association/American Council of Life Insurers-proposed Risk-Based Capital reporting of 2020 Net Operating Income.
Under the proposal adopted by the NAIC, life companies can report the greater of actual 2020 NOI or 85 percent of 2019 NOI.
The guidance also formally implements the NAIC Working Group’s earlier actions to:
–Extend the June 12 RBC Guidance on loan modifications through December 31 reporting;
–Treat construction loans temporarily paused by governmental directive favorably; and
–Apply a 2019-2020 average NCREIF price index to compute property valuation for year-end 2020 RBC reporting.
The NOI and other proposals are designed to adapt Risk-Based Capital reporting to the unique circumstances of the COVID-19 pandemic.
The NAIC Life Risk-Based Capital Working Group committee vote was unanimous.
Prior to the NAIC working group vote, MBA and ACLI submitted a letter supporting the guidance and reporting instructions. “We believe the resulting proposed adjustments to 2020 NOI inputs, where applicable, will result in risk-based capital requirements that more reasonably reflect credit risk for loans that continue to perform after the underlying properties experience a drop in NOI in 2020,” the letter said. “We also support the additional NOI guidance that instructs insurers that apply the adjustment to 2020 NOI inputs to retain actual 2020 NOI information in their workpapers so that the information can be readily available to regulators.”
MBA and ACLI plan to work with NAIC staff on making a conforming change to RBC reporting worksheets to report 2020 NOI for informational purposes. MBA will also work with ACLI to advocate for NAIC to adopt an industry proposal to change the RBC factors for equity investments in real estate.
Contact MBA Associate Vice President of Commercial/Multifamily Policy Bruce Oliver for more information or to join MBA’s MBA’s Life Company RBC Working Group.