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Summary and Takeaways

• The Life Risk-Based Capital (E) Working Group is considering Proposal 2025-16-L MOD on collateral loans, which would reject look‑through treatment for loans backed by JVs/LPs/LLCs or residual interests, instead calibrating RBC to loan-to-value (with a proposed generic haircut) and continuing existing treatment for mortgage-backed collateral loans under Proposal 2024-15-L, while key AVR items remain set to zero pending actuarial input.
• Regulators and industry commenters generally support refining collateral loan RBC but differ on timing and calibration: some argue current rules under-recognize risk yet view the proposal’s charges as too punitive or insufficiently tied to structural features; they urge empirically grounded, proportional charges, more reliance on look-through where appropriate, and an implementation date no earlier than year-end 2027.

On March 22, 2026, the NAIC Life Risk-Based Capital (E) Working Group met for the Spring 2026 Meeting. The Working Group is considering a proposal affecting collateral loans, an area where insurers frequently rely on third-party data and models to assess underlying collateral and structural protections.

The RBC Proposal 2025-16-L MOD (Collateral Loans) rejects a “look-through” approach for collateral loans backed by joint ventures, partnerships, limited liability companies, or residual interests, emphasizing that collateral loans are structurally distinct and benefit from features such as borrower equity subordination and first-loss buffers that warrant different regulatory treatment. A modified framework would calibrate RBC charges to loan-to-value (LTV), apply a generic haircut (e.g., a proposed 20% adjustment), and continue existing treatment for mortgage-backed collateral loans adopted under Proposal 2024-15-L. Key defined concepts include collateral loans, look-through, LTV, borrower equity subordination, and first-loss buffers.

The proposal was discussed for public comment at the February 10, 2026, Working Group meeting. As of the Spring Meeting, the proposal remains exposed; related elements reference continuation of treatments under Proposal 2024-15-L and setting specified asset valuation reserve items to zero pending advice from the American Academy of Actuaries.

NAIC commissioners support refinements but contend a year-end 2026 effective date is premature and that proposed charges do not accurately reflect collateral loan risk; they urge calibration to structural features, proportionality to exposure, and implementation no earlier than year-end 2027. Implementation of this proposal is slated for 2027. NAIC grounds its position in RBC Principles of Materiality, Process, and Accuracy, calling for empirically supported calibration, additional information, and a reasonable runway to avoid retroactive rule making. The Utah Insurance Department agrees that current rules under-recognize risk but views the proposal as too punitive; it supports higher look-through for JV/LP/LLC-backed loans while advocating RBC charges that reflect both collateral riskiness and collateral amount through an LTV-based sliding scale. The Alternative Credit Council commends consideration of collateral type and LTV, urges a data-driven analysis to set charge ranges by LTV (noting the proposed 20% generic haircut), and supports setting AVR Basic Contribution, Reserve Objective, and Maximum Reserve to zero until advised by the American Academy of Actuaries.