NAIC seeks comment on ABS issues

On October 6, 2026, the Risk-Based Capital Investment Risk and Evaluation Working Group (Working Group) of the National Association of Insurance Commissioners (NAIC) exposed (the Exposure) a statistical summary of asset-backed securities (ABS) held in the investment portfolios of US insurers in 2025 and a brief series of questions on which the Working Group invites public comment. The Exposure follows a Working Group meeting by conference call on October 5. The comment period runs through November 5, 2026.

The Exposure is the latest step in the NAIC’s ongoing effort to assess investments by insurers, which the NAIC perceives are becoming more complicated, sometimes opaque and susceptible to capital arbitrage. Over the past several years, the NAIC has introduced initiatives to, among other things, impose criteria for when an equity-backed debt security should be regarded as a bond for purposes of capital charges (known as the Principles-Based Bond Definition), to challenge investment securities ratings assigned by ratings agencies and to conduct due diligence on ratings agencies themselves. The NAIC is particularly focused on ABS because of their relative complexity and perceived potential for abuse.

The summary indicates that the largest categories of ABS by type held by insurers are: 

• Agency RMBS – Not fully guaranteed, comprising 17.9% of all ABS
• CLO/CBO/CDO (unaffiliated), which includes CLO – Broadly syndicated loans, CLO – Mid-market, CDO – Trust preferred (TruPS), CBO, and investment fund debt/fund financing/rated note feeders, at 17.8%. Fund financing investments, such as collateralized fund obligations, and private credit vehicles, such as rated note feeders, have drawn particular attention from the NAIC since at least 2019 when these regulatory initiatives began. As noted below, the NAIC continues to view these asset classes as priorities for regulatory scrutiny.

Other large categories include:

• Non-agency CMBS (unaffiliated), including CMBS and commercial real estate CLOs, at 12.7%
• Non-agency RMBS (unaffiliated), including RMBS and municipal housing bonds, at 11.7%
• Other financial ABS – Self-liquidating (unaffiliated),  at 12.2%

The Exposure indicates that regulators have identified the following three categories as priorities for the Working Group and asks recipients to comment on “availability of data and inputs to model the priority assets … identified”:

• Lease-backed securities
• ABS backed by individual obligations (e.g., consumer finance) 
• Fund finance ABS (as noted above, this category includes fund financing and rated note feeders)

We will continue to monitor the NAIC’s efforts in this space, which suggest that further regulatory scrutiny and oversight of and guidance on insurer investments is likely.