NAIC addresses risk transfer criteria for combination life reinsurance contracts

In a closely followed development, the National Association of Insurance Commissioners (NAIC) has adopted rules governing when a life reinsurance contract combining both yearly renewable term (YRT) and coinsurance components satisfies risk transfer criteria. On December 11, 2025, the Financial Condition (E) Committee (the Financial Condition Committee) and the Executive Committee / Plenary of the NAIC adopted Statutory Accounting Agenda Item 2024-06, which generally provides as follows. 

For contracts combining YRT and coinsurance reinsurance, “where there are interdependent features such as a combined experience refund or an inability to independently recapture,” the fact that each of the YRT and coinsurance reinsurance components satisfies risk transfer requirements on their respective bases “is necessary but not sufficient for the contract as a whole to satisfy risk transfer. When evaluated in its entirety, such contract(s) cannot 

1. potentially deprive the ceding insurer of surplus at the reinsurer’s option or automatically upon the occurrence of some event; 
2. potentially require payments to the reinsurer for amounts other than the income realized from the reinsured policies, nor;
3. contain any of the other conditions prohibited by [the NAIC’s statutory accounting appendix on life reinsurance agreements] related to risk transfer.”

This new guidance is “effective immediately for new/newly amended contracts. For existing contracts, the clarification shall be accounted for as a change in accounting principle ... on or before December 31, 2026.” An alternative proposal, which had been previously considered by the Financial Condition Committee but ultimately rejected, would have delayed effectiveness for, or exempted, reinsurance contracts based on whether they had been submitted to and reviewed by state insurance regulators.