State regulators want insurers to downplay key financial strength figure

Image shows a paper bill and the letters RBC — Should life insurance companies be permitted to publicize their RBC ratio?

By John Hilton

State insurance regulators resumed discussions Tuesday on a proposal to make a key measure of insurance companies’ financial health confidential.

The proposal by the Capital Adequacy Task Force would discourage insurers from releasing risk-based capital figures. RBC numbers are a regular feature of public companies’ financial reports and earnings calls with Wall Street analysts.

RBC requirements provide for a ratio to assess the level of risk associated with an insurance company's assets. Insurers generally like to operate with a 400% to 450% RBC ratio. Brighthouse Financial is one insurer that has struggled with its RBC ratio in recent quarters.

The RBC change is an unusual proposal in that it united life insurers and consumer advocates in opposition. Regulators let the RBC proposal rest for months before reviving it Tuesday during a CATF session at the spring meeting of the National Association of Insurance Commissioners.

Ohio made the original proposal, which would prohibit publication of RBC figures in “press releases, earnings releases, webcast materials, or any other earnings presentations or webcasts.”

The concern is that wide dissemination of RBC figures is leading to a misunderstanding of insurance companies’ financial strength, Ohio regulators claimed.

“Because the NAIC formula develops threshold levels of capitalization rather than a target level, it is neither useful nor appropriate to use the RBC formula to compare the RBC ratio developed by one insurance company to the RBC ratio developed by another,” the proposal reads. “Comparisons of amounts that exceed the threshold standards do not provide a reliable assessment of their relative financial strength.”

After accepting comments early in 2024, including opposition letters from Transamerica and the American Council of Life Insurers, CATF paused the RBC proposal. Due to the delay, the task force adopted a new 45-day comment period at the urging of chairman Mike Yanacheak, chair actuary for the Iowa Insurance Division.

Key financial tool

The NAIC adopted the life RBC formula in 1993 “for specific regulatory needs,” CATF said in an information sheet. Four major categories were identified for the life formula: asset risk, insurance risk, interest rate risk, and all other business risk. The property/casualty and health formulas were implemented in 1994 and 1998, respectively

Brendan Bridgeland is director for the Center for Insurance Research and an NAIC-designated consumer liaison.

“The RBC is incredibly helpful in the five-year historical for tracking trends so a consumer group can look and see if there's been radical changes that drive the need for a merger or something else,” he said Tuesday.

He was countered by Rachel Hemphill, chief actuary at the Texas Department of Insurance.

“By the time companies are well above any thresholds of concern, whether one is a little bit higher or a little bit lower than the other in RBC, should not be used as a way to compare or evaluate strength of those companies,” she said.

CATF also shared the 2024 comment letters. ACLI suggested a disclaimer “around the intended purpose of RBC data.”

Otherwise, the RBC proposal, “could lead to a significant lack of transparency into an insurer’s financial health for consumers and policyholders. It could complicate validation of RBC-related information for rating agencies, investment analysts, and reinsurance and other arrangements,” the ACLI letter states.

The American Academy of Actuaries also opposed the RBC change in a comment letter. Removing the RBC data only opens the door for alternative forms of solvency calculations, the AAA noted.

“We believe that RBC has served its purpose well in that it has assisted regulators in identifying weakly capitalized companies,” wrote Tricia Matson, chairperson of the Prudential Regulation Committee of the AAA. “It has also provided a general and consistent way for other stakeholders to obtain a high-level understanding of a company’s solvency position, which promotes public confidence.”

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.