Conning Viewpoint: Risk-Based Capital Changes Will Affect Life Portfolios but Maintaining Holistic Approach to Investment Strategy Remains Paramount

September 21, 2021

Most Impact Likely on Firms with Smaller/Lower-Rated Portfolios, Lower Capital Levels


HARTFORD, CT – September 21, 2021 —Leading global investment management firm Conning has posted a Viewpoint examining the potential impact on life insurers of long-discussed proposed changes to risk-based capital (RBC) charges. The new charges are expected to lead to lower capital levels in the industry, a minor concern given the industry’s current healthy capital position, but they could be challenging for firms with smaller or lower-rated portfolios and already low capital levels.


Authors Matthew Reilly, a managing director in Conning’s Institutional Solutions, and Mary Pat Campbell, a vice president in Insurance Research, examine the newly adopted changes to C1 factors for bonds and the portfolio adjustment factor (PAF) in the Viewpoint “Evolutionary, not Revolutionary: The Looming Change in Bond C1 Factors for Life Insurers.”


“Bonds at the lower end of credit quality for the NAIC 1 risk category will see risk charges double or almost triple,” noted Campbell. “With many insurers relying on their corporate bond portfolios in A- and BBB-rated securities, this could have a significant impact.”


Changes to the PAF, a metric encouraging portfolio diversification, are expected to also have a greater impact on portfolios invested in less than 500 issuers, a challenging benchmark for smaller portfolios, Campbell added.


Reilly added that the C1 charges are still driven by nationally recognized statistical rating organizations (NRSROs), likely resulting in insurers pursuing yield per NRSRO rating and potentially encouraging them to increase their investment in less liquid securities, structured securities, and any other asset offering higher capital-adjusted yields.


“The increased complexity may benefit life insurers that incorporate a more holistic approach to investment strategy, inclusive of cash flow and target RBC levels,” Reilly said. “Conning has extensive experience in optimizing investment strategies for life insurers inclusive of all of these factors and no new capital factors or RBC formulas will change that. We believe we are well-prepared to help clients navigate these changes.”


This Viewpoint replaces an earlier version (June 2021) and reflects updated fixed income capital charges.




Conning ( ) is a leading investment management firm with more than $207 billion in global assets under management as of June 30, 2021.* With a long history of serving the insurance industry, Conning supports institutional investors, including insurers and pension plans, with investment solutions, risk modeling software, and industry research. Founded in 1912, Conning has investment centers in Asia, Europe and North America.

*As of June 30, 2021, represents the combined global assets under management for the affiliated firms under Conning Holdings Limited and Cathay Securities Investment Trust Co., Ltd. (“SITE”).  SITE reports internally into Conning Asia Pacific Limited, but is a separate legal entity under Cathay Financial Holding Co., Ltd. which is the ultimate controlling parent of all Conning Holdings Limited controlled entities.


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